AutoZone: Auto parts must show results, or else

Posted Jul 30th 2009 3:40PM by Joseph Lazzaro
Filed under: AutoZone Inc (AZO), Stocks to Buy

This was a complex call, but I'm Reiterating my Buy rating for AutoZone (NYSE: AZO), first recommended on March 30, 2009 at a price of $163.40.

AutoZone's stock has not performed as well as I had expected. Technically, AZO has straddled the 50-day moving average for two months, or as a friend and trading guru used to say, "The stock is meandering."

And meandering stocks don't feed the bulldog. That's said, we're sticking with AZO on the bullish auto aftermarket trend. The U.S. auto sector's fleet is aging: Americans will buy about 9 million new cars in 2009, which means used vehicles will become more important, in fleet percentage terms, and that points to increased auto maintenance - which is bullish for AZO. Moreover, the U.S.'s frugal consumer trend is likely to continue well beyond 2010, another positive for the auto parts sector. The First Call FY2009/ FY2010 EPS estimates for AZO are $11.71 to $13.12.

Finally, AutoZone is a defensive/growth hybrid, which means some growth had better appear, or I'll remove the stock from the Buy list.

Stock Analysis: AutoZone is a moderate-risk stock. If you already own the stock, Hold your shares. If you don't own shares, consider buying a 25% position in AZO now. Under any circumstance, don't buy more than 50% of your AZO position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $115.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

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