Investors Should Love AutoZone's Clear Path To Double-Digit Earnings Growth

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AutoZone, Inc. AZO reported its Q1 2017 results largely in line with expectations, although comps marginally missed the consensus, while the EPS beat expectations.

Wedbush’s Seth Basham reiterated an Outperform rating on the company, with a price target of $870, driven by visibility into potential for double digit EPS growth in the medium term.

Comp Improvement

“Weather pressures were less severe this quarter and comp trends ex a soft spot immediately following the presidential election were ~2 percent, factors that should help support comps in that range for F2Q despite a tough comparison,” Basham mentioned.

AutoZone’s commercial business generated improved growth for the first time in five quarters, which the analyst believes was a favorable sign.

“While an overhang associated with the threat of e-commerce may remain, improving weather and comp trends should drive the stock in the near term,” Basham stated.

Encouraging Trends

Despite the weather remaining “unseasonably mild” in the Midwest, Mid-Atlantic and Northeast regions during November, the comp gap between the regions was eliminated, after having narrowed in Q1, as AutoZone lapped the pressure related to severe weather in November 2015.

“We are encouraged by this trend, but note that comparisons are tough in December from weather-related demand pull forward before easing in calendar 2017,” the analyst went on to say.

The company’s total domestic commercial sales grew 6.3 percent year on year in Q1, from 5.2 percent in Q4, and represented increased traction from commercial programs and delivery frequency initiatives.

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Posted In: Analyst ColorLong IdeasReiterationAnalyst RatingsTrading IdeasSeth BashamWedbush
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