Q1 Preview: AutoZone (AZO) Should Beat as Margins Continue Expansion

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AutoZone ( AZO ) shares are looking strong heading into its first-quarter earnings report, expected out before the market opens Tuesday.

Analysts are looking for quarterly earnings of $4.44 per share with revenue of $1.89 billion. The number would be a 17.8 percent improvement from earnings of $3.77 per share reported in the same period last year.

Shares of AutoZone gained 7 percent in the quarter and are 2.2 percent higher since. The stock is up about 23 percent for 2011 and has traded in a range of $246 to nearly $342 over the last year.

Excluding cash, AutoZone is trading for 12.9x next year's earnings, compared with 12.5x at Advanced Auto ( AAP ), and 17.9x at O'Reilly Automotive Inc. (Nasdaq: ORLY).

Data from Bloomberg has 10 analysts with a Buy rating on AutoZone, 15 at Hold, and one with a Sell-equivalent call. The Street's price target average is $351.50, with a low of $315 and high of $390.

Investors might be looking to Advance Auto for hints into AutoZone's quarter. In early November, Advanced Auto beat third-quarter earnings estimates with results of $1.41 per share. Revenue of $1.46 billion came in-line with expectations. Further, Advanced Auto also raised its fiscal 2011 outlook from a range of $4.60 to $4.80 to a range of $4.90 to $4.95, which was above consensus views.

Into the numbers Deutsche Bank is looking for earnings of $4.32 per share with sales of $1.89 billion. The firm is modeling for comps of 3.5 percent, and a 30 basis point increase in margins.

The firm also commented on margin expectations for 2012: "On the gross margin line, we continue to model increases, but at a decelerating pace as input pricing on commodities will catch up with AZO's retail price increases. For 1Q11, we are forecasting GM up 20 bps y/y. On the other hand, AZO will save at least 10 bps on expenses as they have now fully anniversaried the rollout of their hub store initiative, which was complete at the end of 2010, but not fully cycled until 4Q11. AZO will continue to invest in improving its hub stores, but the incremental costs will be more on capital than on expenses We are forecasting 10 bps of leverage in 1Q12."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out AutoZone's past performance at Streetinsider's AutoZone's Income Statement .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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