What To Watch For In Autozone's Upcoming Earnings Release

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Deutsche Bank expects AutoZone, Inc. AZO to report fourth quarter numbers below consensus when it announce its August quarter results on September 22.

DB sees comps up 1.5 percent and EPS of $14.19, lower than consensus estimate of 1.9 percent and $14.27, respectively. The consensus' 1.9 percent forecast is in line with the 2 percent comp last quarter. In the past four quarters, AutoZone's earnings have managed to surpass Street view thrice.

The brokerage noted that the auto parts retailer faces tough comparison amid weak industry backdrop. On the positive side, warm weather over the summer would have likely helped results.

"All told, we see some modest risk to comp estimates," analyst Mike Baker wrote in a note.

In addition, Baker sees commercial sales to rise 4.6 percent this quarter, driven by the addition of more commercial locations. The analyst noted the drop in commercial sales in each of the past four quarters, going from up 13.1 percent in the fourth quarter 2015 to up just 6.5 percent last quarter.

"Therefore we estimate that commercial sales per location have been flat to down. With the DIY business more susceptible to online incursions, we believe solid trends in the DIFM business become that much more important," Baker highlighted.

Further, Baker projects gross margins up 10 bps and SG&A flat for a total operating margin increase of 10 bps, similar to the last two quarters. This compares to the consensus estimate of up 50 bps.

In addition, the analyst estimate EBIT at $711 million, just below consensus, resulting in a year- end operating margin of 19.3 percent versus industry leader O'Reilly Automotive Inc ORLY's 19.5 percent LTM margin.

Baker rates AutoZone Hold with a price target of $770.

"We see AZO as one of the most consistent stories in hardline retailing, but balance that against a valuation that is already a premium to our long term EPS growth rate of 12%," Baker added.

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Posted In: Analyst ColorPrice TargetPreviewsReiterationAnalyst RatingsTrading IdeasDeutsche BankMike Baker
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