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AutoZone Q1 Earnings: What Can Investors Expect?

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AutoZone (AZO) will report its earnings for the first quarter of fiscal on Tuesday. Overall, the company has a decent history of beating analysts’ estimates. In the trailing 12 quarters, AutoZone beat the forecasts in nine quarters and missed the forecasts in three quarters.

For the first quarter, Reuters-polled analysts expect the company’s earnings to increase 5.5% YoY (year-over-year) to $13.76 per share. The YoY growth expectation is much lower than the high-double-digit growth rates AutoZone registered in the previous four quarters. Analysts expect that increased operating expenses could partially offset the benefit of higher revenues.

What impacts AutoZone’s earnings?

Analysts’ projections show that the company would continue its YoY top-line growth trend in the first quarter. For the first quarter, they expect AutoZone to report revenues of $2.77 billion—an increase of 4.7% YoY. In fiscal 2019, AutoZone’s sales increased 5.7% YoY.

The company’s first-quarter revenues will likely benefit from its sales-driving initiatives. Under the initiatives, AutoZone will expand its stores and high-quality product portfolio. The company’s sustained investment in developing the supply-chain network to speed up inventory fulfillment and the delivery process will also drive its first-quarter revenues higher.

AutoZone is also building omnichannel capabilities through technological innovation to improve customers’ shopping experience. Notably, the company offers fast delivery and buy-online-pick-in-store facilities under the omnichannel strategy, which is driving traffic to its store and online site. The policy will likely boost AutoZone’s revenues in the first quarter.

Also, the company will likely benefit from the rising average age of on-road vehicles in the US. According to an IHS Markit report on June 27, the average age of on-road vehicles in the US reaches 11.8 years in 2019. In 2018 and 2017, the average age was 11.7 years and 11.6 years, respectively. A rise in the average age is a good sign for auto part replacement retailers. However, the average age is terrible news for auto manufacturers like Ford Motor Company (F) and General Motors (GM).

Higher operating expenses due to opening new stores, hubs, and distribution centers could weigh on AutoZone’s first-quarter earnings. Likewise, increased investments in technological innovation and omnichannel strategies could pressure the margins. Higher tariffs due to the ongoing trade war between the US and China also concern the company.

Analysts’ recommendations

According to the latest consensus compiled by Reuters, about 52% of the 23 analysts covering AutoZone recommended a “buy,” 43% recommended a “hold,” and 5% recommended a “sell.” As of today, analysts’ consensus 12-month target price for AutoZone stock was $1,191. The target price shows a minor upside potential of 1.6% from its current market price of $1,172.66.

The current consensus target price has witnessed a sharp upside revision this year. At the beginning of the year, analysts provided an average target price of $917.14. Analysts seem to be impressed with AutoZone’s continued revenue growth momentum, expanding profit margins, and sales-driving initiatives.

With a YTD (year-to-date) return of 39.8%, AutoZone is the top performer among automotive replacement part retailers. O’Reilly Automotive (ORLY) stock has gained 29.4% YTD, while Advance Auto Parts (AAP) has lost 1.8% of its market value.

Peers’ recent performance

Advance Auto Parts reported better-than-expected third-quarter earnings results last month. Overall, the company’s third-quarter EPS of $2.10 marked YoY growth of 11.1% and beat analysts’ expectations of $2.05. The net sales increased 1.6% YoY to $2.31 billion and beat analysts’ estimates of $2.30 billion.

For the fourth quarter, analysts expect Advance Auto Parts to report an EPS of $1.37 on $2.13 billion in revenues. The fourth-quarter revenue and earnings estimates depict a Yoy growth of 1.1% and 16.7%, respectively.

O’Reilly Automotive reported impressive third-quarter results on October 23. The company’s top line grew 7.4% YoY to $2.67 billion and beat analysts’ forecast of $2.64 billion. The sequential earnings rose 12.9% YoY to $5.08 per share and beat analysts’ expectations of $4.79.

Analysts expect an EPS of $4.28 for the fourth quarter on $2.48 billion in revenues. As a result, the sequential revenues and EPS estimates signify a YoY improvement of 7% and 14.9%, respectively.

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