AutoZone, Inc. (NYSE:AZO)

CAPS Rating: 3 out of 5

The Company is a specialty retailer of automotive parts and accessories.


Player Avatar dcrednek (79.92) Submitted: 7/20/2010 10:55:08 AM : Outperform Start Price: $146.40 AZO Score: +140.79

At $202 AZO has been a nice winner for me. But I must admit that the analysis on this one is mixed at best. Some have placed 'underperform' ratings on this one based on its negative BV. The simple response to this is to look beyond the simple BV calculation. If one adds back into TBV the company's $380M in treasury stock, then BV is easily in the black. No, the company can't simply push those shares onto the market without dropping the price, but you can't simply ignore a line item like that, and BV does not account for treasury stock (as something good). Couple with that the fact that AZO kicks-off approximately $17.70/share of levered free cash flow (ttm) and it's much easier to see why many investors have such a high opinion of the company and why they place such a price on its common stock.

Now there's a flip side to this story. First, I'm actually quite unimpressed that management continues its share buy-back at this time. Instead of paying such a steep premium for equity, I think that investors would be better served if management would use free cash flow to accelerate the retirement of the company's $2.7B in debt. Now is the time when AZO should be cleaning up its balance sheet by refinancing at lower interest rates what it can, and by retiring the remainder.

In short, I think this company is priced fairly given its current cash flow performance and future prospects, but I do have concerns about the decision to buy-back stock rather than paid down debt.

Report this Post 2 Replies
Member Avatar lovesstocks2 (< 20) Submitted: 5/11/2011 1:43:50 AM
Recs: 0

When you make that call you should ignore book value and concentrate on the net market value of the business. Despite the book value, buying back stocks may actually be the best things to do, especially with the bright growth prospects ahead. Book value can and in this case is far understated.

Member Avatar dcrednek (79.92) Submitted: 3/7/2012 8:23:15 AM
Recs: 0

AZO's management team continues to buyback shares at what I conclude to be excessive prices while doing little in the way of reducing its long-term liabilities. I'm closing my position on this one for the time being. I think that AZO has had a good run but my assessment of upside potential versus downside risk leads me to conclude that share prices will either hold or might come down 10-20%.

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