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.