AutoZone (AZO): Stock crushed but looks good for a snapback trade

Posted Sep 23rd 2009 5:20PM by Amey Stone

AutoZone (NYSE:AZO) is in my sweet spot right now for a day trade. I like to buy quality companies that are being irrationally beaten down perhaps too much after a mediocre earnings report. The company has been hurt by the one-two punch of the recession plus the bankruptcies of the major automakers. The company posted a 3.1% year-over-year decline in earnings, and a 1% increase in sales (quarter-over-quarter). They also didn't raise guidance. The market was in an unforgiving mood today and the stock is down 11 points, or about 7.4%.

However, Merrill just came out with a report defending the company. In the report Merrill states:

"Maintaining estimates and $185 PO We maintained our 2010 and 2011 EPS estimates of $13.40 and $15.00, respectively, for AZO. For 1Q10, we are looking for EPS of $2.72 vs. $2.23 last year, based on 5.5% domestic comps. Our price objective of $185 is based on 14x our calendarized 2010 EPS estimate of $13.65. We maintain our Buy rating as fundamentals remain solid and valuation is attractive. "

The stock right now is $142.80. I'm long the stock here for a very short-term day or two trade.

Thanks to James Altucher for this analysis.

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