AutoZone, Inc (#AZO) is an American retailer of automotive components (parts and accessories) for cars, SUVs, vans and light trucks. In addition, the company sells vehicle diagnostics and repair software under the ALLDATA brand.
We consider #AZO to be a good stock in the "Optimal Risk" portfolio at $ 1,136.81.
1) Excellent financial results for the last quarter. At the end of the fourth quarter of fiscal 2020, company has demonstrated impressive results. Revenue in annual terms increased by 14% up to $4.55 billion, and EBITDA is 28% (last year was 21%). Net income grew drastically by 41.24% and reached $740.5 million together with an EPS grew by 47.62%.
2) Expansion into the international market is rare for the auto parts retailer. However, AutoZone is actively expanding its presence in export markets: the number of stores in Mexico and Brazil has grown indeed by 5%. 3) The e-commerce platform is a key advantage over its competitors. The Company operates in a highly competitive market therefore it manages to provide a high level of service. The competitive advantage can be seen in the online platform, allowing them to battle with larger competitors 4) Discount on multipliers is maintained. Shares of AutoZone look undervalued compared to the its industry.
According to EV/EBlTDA, the discount is about 68% and about 47% for P/E.
Key risks are high competition in the industry tigether with the effect of the Pandemic that is pressuring the retail sector as a whole.
OTB Global Investments
London, 1 December 2020