AutoZone's Solid Q3 Results, Strong Hub Strategy Keep UBS Bullish

Despite a slower start to the quarter, AutoZone, Inc. AZO reported strong third-quarter results Tuesday.

Parts availability has been a key driver of performance, and this was supported by the company’s hub strategy, according to UBS.

The Analyst

Michael Lasser maintained a Buy rating on AutoZone with an unchanged $1,210 price target.

The Thesis

The aftermarket automotive parts retailer’s sales momentum continued through the third quarter, Lasser said in a Tuesday note. (See his track record here.) 

Although delayed tax refunds and unfavorable weather impacted performance in February, the company reported a higher-than-expected 3.9 percent comp for the quarter, the analyst said. 

Assuming the first three months of February represent around 25 percent of the quarter — and performance was flat during this time — it suggests AutoZone generated same-store sales growth of 5 percent in the subsequent nine weeks, Lasser said.

The auto parts retailer has doubled its projection for its long-term megahub total from 25-40 to 70-90. The analyst said this demonstrates AutoZone’s commitment to further improving parts availability, which has been a key driver of performance.

The hub strategy should boost comps in both the do-it-yourself and do-it-for-me segments, he said. 

AutoZone’s margins will continue to feel the pressure of its mix shift to commercial, yet its company’s share price will likely be influenced by the sales performance, according to UBS. 

Price Action

AutoZone shares were up 0.25 percent at $1,035.17 at the time of publication Wednesday. 

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