Autozone stock report confirms bullish trend rally

Automatic zone NYSE: AZO stocks surged following the FQ2 report, confirming that the uptrend is intact. As the news is in line with the outlook for growth and capital returns, the trend will likely continue through 2024. The technical picture is also favorable, with the stock breaking out of a bullish triangle. In this scenario, the stock could rise 15% to 18% soon and continue to hit new highs through the end of the year.

Autozone beats consensus and widens margin

Autozone’s performance in FQ2 was solid. The company grew revenue to $3.86 billion with a gain of 4.6%, beating analysts’ consensus estimates. The outperformance is small, around 250 basis points, but compounded by a wider margin and a robust international growth outlook. System-wide comps rose 3.0%, aided by a FX tailwind. The FX-neutral index is up 1.5%, led by a 10% gain in international markets. The overall data relating to the United States alone are positive, but just 0.3%. Revenue performance was also aided by the addition of 26 net new stores, an increase of 0.36%.

The margin news is the most impressive. The company expanded its gross margin by 160 basis points and controlled costs well. Selling, general and administrative expenses increased just 50 basis points, leaving operating income, net income and GAAP earnings above consensus and outpacing revenue advancement. Margins were improved due to higher realized cost/merchandise margin, compounded by lower supply chain costs and offset by increased wages and investment. The bottom line is that operating income improved by 11%, net income by 8%, and GAAP earnings by 17%.

The increase in GAAP earnings is partly due to share repurchases, which have been robust in 2023. The company repurchased 84,000 shares in the second quarter for $223 million, reducing the number of shares by 7.8% year over year . The company has more than $2 billion left under current authorization, so buybacks are expected to continue unabated into 2024. The share count has been reduced by 90% since buybacks began in 1998, as seen in the stock price .

Sellers buy Autozone in large quantities

The sales side is firmly committed to Autozone and supports the rally. Marketbeat.com tracks eighteen analysts who are pricing the stock at Moderate Buy and are raising their price targets. The consensus is up 10% year over year and will be driven higher into 2024. The most recent review is from Wedbush and was published just days before the second quarter release. The company’s analysts reiterated an Outperform rating and a $2,950 price target, implying a little upside.

Raymond James set the highest target of $3100 in December when it moved to Strong Buy. Autozone analysts believe Autozone’s strong auto parts coverage and new hubs ensure better availability, which should drive market share gains in the United States this year. They see the stock as undervalued and the international segment as a long-term growth driver.

Institutions are also invested in this stock, owning around 90% of the company. Vanguard is the largest holder with just over 10%; funds hold a fair amount, but much of it is held by private capital, making the matter a strictly confidential matter. Among the benefits for shareholders is the below-average beta of 0.7X which helps reduce portfolio volatility during market downturns.

Technical Outlook: Autozone is in an uptrend, gaining momentum with room to run

The technical outlook for AZO stock is robust. The market is in an uptrend, confirming the uptrend and indicators suggest plenty of room for maneuver. Stochastic and MACD are bullish, with the MACD rising and both indicators low in their ranges. Assuming the market continues to rise, it could advance for several weeks before reaching the next peak.

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