Can AutoZone Inc. (AZO) stock continue its growth momentum in the coming years?

AutoZone Inc. (AZO) recently announced its financial results for the first quarter. It beat both earnings and revenue expectations for the period despite the difficult operating environment due to the pandemic.

The Memphis, Tennessee-based car parts maker announced earnings of $442.4 million, or $18.61 per share for the three months period ended Nov. 21, as compared to $350.3 million, or $14.30 per share in the same period last year. On the other hand, analysts surveyed by FactSet were expecting AutoZone to report earnings of $17.80 per share.

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Revenue for the quarter rose to $3.154 billion, as compared to $2.793 billion in the year-ago quarter. Analysts on average were looking for revenue of $3.147 billion.

Speaking on the results, CEO Bill Rhodes said in a statement, “as the COVID-19 global pandemic continues, our primary focus has been and continues to be the health, wellness, and safety of our customers and AutoZoners.”

The company repurchased $678.3 million worth of its common stock during the first quarter at an average price of $1,161 a share. Looking forward, it plans to spend $117.6 million as a part of its overall share repurchase program.

AutoZone’s inventory in the quarter increased 3.7 percent on a year over year basis, mainly due to more store openings. It opened 39 new stores in the United States, besides a couple of store openings in Brazil during the quarter.

Growth Prospects

AutoZone has a history of growing faster than its rivals. It also has many opportunities to expand in the international market. If we look at the sales performance of the company in the past, the company has consistently posted year-over-year revenue gain over the past 20 years. The company is also continuously expanding its global presence. Its stores in Mexico and Brazil account for 10 percent of its total stores this year, significantly higher than 5 percent back in 2010.

However, it also faces competition from smaller auto-part rivals, as well as big companies such as Amazon and Walmart. But it is famous for providing specialized customer services that give it an edge over rivals. Moreover, it also offers a wide range of free services such as battery testing, tool loaning, check engine light readings, and battery charging, among others.

AutoZone is also operating a couple of e-commerce websites for retail and commercial clients, who can place order and receive their packages on the very next day. It also has in-store pickup options for the customers.

Another factor that has been contributing to its growth is the increasing age of vehicles that has a positive impact on the overall demand for auto parts. The average age of light vehicles in the U.S. has increased from nearly 8.5 years in 1996 to about 12 years in 2020. The company is expected to benefit from the rising age of vehicles, as it deals in the aftermarket automotive parts and accessories.

Increasing Electric Vehicles

Some industry experts believe that the increasing adoption of electric vehicles (EV) around the world may affect the auto parts retail market in the coming years. It is true that EVs have relatively lower maintenance costs and have fewer parts. However, AutoZone already has some presence in the EV market. For instance, it provides multiple parts for EV maker Tesla including brake pads, windshield wipers, mirror replacement glass, and headlights, among others.

Moreover, the worldwide automotive market will still be dominated by conventional vehicles for many years to come. Therefore, AutoZone is expected to do well in the future.

Analysts Coverage

The consensus price target for Autozone stock is $1,350 per share, which represents a premium of nearly 18 percent from the stock’s closing price in the last trading session. The highest price target received by the stock is 1,585 per share, and the low-price estimate is 1,190 per share. When it comes to recommendations, most analysts have a “Buy” rating for the stock.

Stock performance

AutoZone stock traded relatively flat this year in terms of price change. If we look at the performance of the stock in recent months, it has declined nearly 5 percent on a year-to-date basis. The 52-week range of the stock is $684.91-$1,268.99, while its market cap stands at $26.343 billion.