** OPTIONS TRADE OF THE WEEK: Buy the AZO Jun 2015 700.000 call (AZO150619C00700000) at or under $5.60, good for the day. Place a protective stop limit at $2.20 and a pre-determined sell at $10.00.
by Ian Harvey
Monday, March 02, 2015
**Gas Prices and Favorable Economic Conditions Great for Autozone!**
AutoZone, Inc. (NYSE: AZO), a retailer and a distributor of automotive replacement parts and accessories in the United States, will report fiscal Q2 results on March 3. The company will announce its results before the market opens, with analysts expecting earnings of $6.37 per share. During the same period last year the company earned $5.63; and the stock is up 2.9% on the year. The stock had reported positive earnings surprises in three of the trailing four quarters with an average beat of 0.74%.
The auto industry as a whole continues to improve, and people are once again spending on both car purchases, as well as repairs and upgrades to their current vehicles. However, there are mixed results from the company's main competitors with already presented reports -- Advance Auto Parts (AAP) recently posted weaker than expected results, a sign that things may not be great for the sector as a whole – but on the other hand, Genuine Parts (GPC) was able to top estimates on both the top and bottom line.
It appears that lower gas prices have likely resulted in more driving miles for cars on the road, which in turn leads to higher demand for parts, which leads to the belief that the current economic landscape is favorable for AutoZone.
AutoZone has a 52-week low of $491.93 and a 52-week high of $651.95.
The stock has a 50-day moving average of $609.8 and a 200-day moving average of $567.80.
The company has a market cap of $20.500 billion and a price-to-earnings ratio of 19.77.
AZO is trading with a trailing 12 month P/E multiple of 19.71 and an estimated forward P/E multiple of 16.02. The stock has an estimated 5 year annual growth of 13.14% and a PEG multiple of 1.50.
AutoZone last released its earnings data on Tuesday, December 9th. The company reported $7.27 earnings per share (EPS) for the quarter, beating the consensus estimate of $7.16 by $0.11. The company had revenue of $2.30 billion for the quarter, compared to the consensus estimate of $2.21 billion.
During the same quarter in the previous year, the company posted $6.29 earnings per share. The company’s revenue for the quarter was up 8.0% on a year-over-year basis. Analysts expect that AutoZone will post $35.76 EPS for the current fiscal year.
AutoZone reported a 15.6% rise in earnings per share (EPS) to $7.27 for the first quarter of fiscal 2015 (ended Nov 22, 2014) from $6.29 in the year-ago quarter.
Quarterly revenues increased 8% year over year to $2.26 billion.
The first quarter of fiscal 2015 marks the 33rd consecutive quarter during which AutoZone’s EPS have grown in double digits. Earnings are expected to rise further, driven by flourishing revenues and higher gross margin from both the retail and commercial businesses, together with increasing store count and regular share buybacks. AutoZone is also focused on growing same-store sales.
Zacks reaffirmed their neutral rating on shares of AutoZone in a research note issued to investors last Monday. The firm currently has a $654.00 price target on the stock.
Zacks’ analyst wrote, “AutoZone reported a 15.6% rise in earnings per share to $7.27 for the first quarter of fiscal 2015, which surpassed the Zacks Consensus Estimate of $7.18. This is the 33rd consecutive quarter in which earnings have grown in double digits. Revenues increased 8% year over year to $2.26 billion, topping the Zacks Consensus Estimate of $2.22 billion. The company is focused on increasing sales through store expansion and boosting earnings via an aggressive share repurchase program. However, we remain concerned about the falling cash balance, consolidation among vendors and a heavy reliance on private-label brands, which may affect margins. Thus, we are retaining our Neutral recommendation.”
On top of this, AutoZone has received a “BBB” credit rating from analysts at Morningstar. The research firm’s “BBB” rating indicates that the company is a moderate default risk. They also gave their stock a two star rating.
A number of other research reports have been presented recently, these are as follows:-
• Analysts at Citigroup Inc. raised their price target on shares of AutoZone from $700.00 to $720.00 and gave the company a “buy” rating in a research note on Monday, January 5th.
• Analysts at Deutsche Bank raised their price target on shares of AutoZone from $500.00 to $630.00 and gave the company a “hold” rating in a research note on Wednesday, December 10th.
• Finally, analysts at Credit Suisse raised their price target on shares of AutoZone from $550.00 to $680.00 and gave the company an “outperform” rating in a research note on Wednesday, December 10th.
There are currently twenty-eight analysts that cover AZO. Of those twenty-eight, eight have a Buy rating, nineteen have a Hold rating and one has a Sell rating. On a consensus basis this yields to a Hold rating. The consensus target price stands at $636.40.
Due to the improvement in the auto industry with people needing to spend on both car purchases, as well as repairs and upgrades to their current vehicles – it appears that solid numbers will be likely for AutoZone’s fiscal second-quarter.
Therefore, based on the facts above the following options trade is recommended…..
**OPTIONS TRADE OF THE WEEK: Buy the AZO Jun 2015 700.000 call (AZO150619C00700000) at or under $5.60, good for the day. Place a protective stop limit at $2.20 and a pre-determined sell at $10.00.