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Boring is Beautiful
Autozone's Two Decades of 17.9% TSR
Bankfluence
December 04, 2023
šØ Catalyst Alert šØ
The third quarter of 2023 earnings season has proven remarkable. Factset's data reveals that approximately 82% of S&P 500 companies have surpassed EPS estimates, marking a 5% increase over the 5-year average of 77%. This collective strength has spurred a notable 4.7% rise in EPS for the S&P 500, marking the first year-over-year increase since the corresponding quarter of the previous year.
In the upcoming session, before the market opens, Autozone ($AZO) is poised to unveil its Q1 2024 earnings. Renowned for delivering exemplary results, Autozone boasts a perfect track record of beating EPS guidance over the last two years, with an 88% success rate in surpassing revenue expectations. While a minor deviation was noted in their Q3 2023 results, analysts anticipate tomorrow's report to showcase an EPS range of 31.46-31.59 (+15.0% YoY) and revenue of 4.19B (+5.0% YoY). Given Autozone's consistent history of outperforming earnings, this catalyst has the potential to propel the share price, potentially completing the diamond pattern breakoutāa topic to be explored further.
Autozone Fiscal Year 2023 Highlights:
Total store count of 7140, which is 6300 in the US, 740 in Mexico, and 100 in Brazil
Record high $17.5B in revenue
On a constant currency basis generated 17.5% same store sales results, while also increasing domestic same stores sales growth by 3.4%
Domestic commercial sales reached an all-time record of $4.6B which translates to 5% of the potential market share. ($92B market)
International business now exceeds 10% of total revenue
Completed $3.7B in share repurchases
Average of 17.9% Total Shareholder Return (TSR) for the past 20 years!
What factors will help sustain positive share price momentum?
In 2023, the United States experiences its sixth consecutive year of an increasing average age for vehicles on the road. The aftermath of the pandemic has propelled the cost of new vehicles to a staggering 24% surge, reaching nearly $48,000 as of April, according to Edmunds.com. The surge in typical loan rates for new-car purchases, soaring to 7%, is a consequence of the Federal Reserve's assertive interest rate hikes to combat inflation. Elevated purchase prices, coupled with the current interest rate environment, have led many Americans to defer their new car purchases.
The UAW strikes in the current year have further dampened confidence and consumer enthusiasm for trading in their reliable vehicles for newer models. Chris Hopson, principal analyst at S&P Global Mobility, notes, "While the end of the UAW strikes provides some potential relief to impacted automakers, ongoing affordability concerns persist for the foreseeable future."
With nearly 122 million vehicles on the road surpassing a dozen years old, S&P Global Mobility members project that the number of older vehicles will continue growing until at least 2028. Jay Nuber, owner of Japanese Auto Professional Service in Ann Arbor, Michigan, observes vehicles with 250,000 to 300,000 miles regularly, attesting to improved manufacturing longevity. Auto manufacturing advancements, such as longer-lasting engines, slower rusting bodies, and durable components, contribute to people holding onto their vehicles for extended periods.
āThe repair-versus-buy equation has shifted,ā notes Todd Campau, an associate director with S&P. Despite rising repair costs, Campau contends that it's typically more cost-effective to fix an older vehicle than to opt for a new purchase. Another aspect impacting the equation is the perception of the automotive technician career, which is not widely seen as a glamorous path. According to a CCC report citing representatives from Universal Technical Institute, a "wave of retiring baby boomers will create 100,000 auto technician job openings over the next decade or so, with the Bureau of Labor Statistics projecting a 4% decline in employment in the overall auto technician field through 2029."
What does this mean for Autozone?
The dynamics are straightforward:
The pandemic-induced spike in prices prompts consumers to retain their vehicles for extended periods compared to recent decades.
The prevailing interest rate environment discourages initiating car loans at a 7% rate, incentivizing consumers to delay purchases for more favorable terms.
Continuous advancements in car manufacturing translate to superior vehicles with extended road life and reduced repair needs.
A plethora of choices, from hybrids to EVs, solar, and hydrogen vehicles, overwhelms consumers, causing decision paralysis.
The decline in 'blue-collar' workers skilled in vehicle repair leads to higher maintenance costs and reduced service efficiency.
The DIY culture is flourishing, aligning seamlessly with Autozone's expertise in vehicle maintenance and enhancements. The accessibility of individuals sharing similar vehicles, maintenance needs, or challenges empowers even the most seasoned car owners to undertake their own services with guidance from platforms like YouTube and various social media outlets. What was once a haven for automotive enthusiasts has evolved into a vast landscape for millions of consumers seeking to economize on expensive maintenance and overpriced parts and oils offered by repair shops. Gone are the days of watching a technician fetch an unavailable oil filter, only to be charged double the cost; we've all encountered such scenarios. This surge in DIY enthusiasm not only reflects a cost-saving trend but also solidifies its place in the automotive landscape.
Challenge to YOU: If the share price gives you pause, consider this: Will the price of ownership in $AZO shares provide more value than the potential cost incurred by chasing the current small and medium-cap frenzy in the market?
Autozone price per share: $2664.11
Cost of owning lesser quality āAdvanced Auto Partsā ($AAP): -63% YTD
