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Morgan Stanley came away from the meetings with a better appreciation for the DIY Auto industry’s defensiveness in downturns, and for AZO’s ability to manage price, improve its inventory turns and availability, and execute its commercial playbook via the hub/mega hub strategy.
AZO appears to be on track to reach the company’s long-term goal of opening 300 hubs and 200 mega hubs. A goal that is currently 40% complete. The mega hub strategy has driven a step change in inventory availability and DIFM growth as increasing SKU breadth and enabling AutoZone to turn its core assortment faster.
Analyst Simeon Gutman wrote in a note following the meetings, “AZO is one of our top ’23 ideas and fits our theme of favoring quality, defensive retailers to open the year. Valuation looks fair (current relative multiple vs. the S&P 500 of ~1x is in-line with the ’19 average) and AZO offers relative earnings consistency and visibility via market share gains (especially in DIFM), steady industry trends, and the business’s track record of expense management.”
Shares of AZO are up 2.83% near end of day trading on Thursday.
By Michael Elkins | Michael.Elkins@streetinsider.com
