AutoZone: Hold shares

Posted Nov 4th 2009 3:30PM by Joseph Lazzaro
Filed under: AutoZone Inc (AZO)

AutoZone Inc.'s stock (NYSE: AZO) remains a bit of an enigma, hence for now, I'm placing a Hold on the company's shares, first recommended on March 39, 2009 at a price of $163.40.

Auto parts chain AutoZone's forecast revenue growth for FY2010 of 4-6% is sufficient following a 4.5% gain in FY2009, including a 5.4% increase in same store sales in Q4. The headwinds are real: high U.S. gasoline prices that might delay purchases, but they are offset by long-term trends: more drivers maintaining older, used cars because they aren't able to purchase a new one.

However, technical analysis conflicts with the above: AutoZone's stock chart has exhibited a bear hug – a bearish pattern – since May, with the stock falling from $170 to about $140. When the fundamentals and technicals conflict, the call is to stand aside, and that's the call here with AZO. Eventually, one of the two will reverse to clarify the picture, and I'll re-evaluate the company at that time.

The First Call FY2010/FY2011 EPS estimates for AZO are $13.16 to $14.74.

Stock Analysis: Don't Buy AutoZone's shares at at this time. If you bought shares in April, Hold the shares. Sell/Stop Loss: $115.

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

Tags: AZO