AutoZone Inc (AZO) 113 Index Membership NYSE Company

1、AutoZone Inc (AZO) 1132004 Index Membership NYSE CompanyAutoZone Inc. (AZO) 11/3/2004Index Membership: NYSECompany Profile: AutoZone, established in 1978 under the name Auto Shack, is the leading retailer of automotive parts and accessories. It caters to do-it-yourself customers offering excellent p

2、roduct selection and customer service, with guaranteed quality control on all the parts. They carry both new and manufactured automotive hard parts, maintenance items, and accessories. Each store carries parts for cars, sports utility vehicles, vans, and trucks. In addition, they have commercial cus

3、tomers, offering delivery to regional and national repair garages, dealers and service stations. This represents the do-it-for-me side of the business. AutoZone currently has 3,400 stores throughout the United States and Mexico. It acquired 800 stores from other auto part retailers in 1998.Industry

4、Analysis: Porters Five Forces Overall industry rating:Unfavorable(high)ModerateFavorable(low)Threat of new entrants. XBargaining power of buyers. XThreat of substitutes.XBargaining power of suppliers.XIntensity of rivalry among competitors. X Threat of new entrants: Anyone can open an auto parts sup

5、ply store, but to establish oneself in the market and attain the level of a firm such as AutoZone, one must have high capital across all phases of service (distribution, sales, etc.) and low labor costs.Bargaining power of buyers: Demand is quite elastic because people will go to the stores with the

6、 cheaper auto parts. AutoZone is dedicated to providing customers with the lowest prices possible.Threat of substitutes: AutoZone is the only automotive retailer capable of handling the largest automotive accounts stretching across multiple states, as well as offering a diagnostic system called ALLD

7、ATA. This system allows for the information to repair virtually any make and model on the road. Bargaining power of suppliers: Automakers are less likely to produce replacement parts in mass quantities far in advance, as demand is unknown. This increases opportunities for aftermarket vendors. In rec

8、ent years, however, replacement parts have experienced declines in unit sales, largely because of the improved quality of the original equipment. The number of automobile parts suppliers is shrinking as companies merge or go out of business, and the trend is likely to continue. Although mergers betw

9、een the largest firms are generally not occurring at present, acquisitions of smaller firms further down the supply chain are taking place. Companies are trying to bulk up via mergers and acquisitions, to better serve their customers that are expanding globally. Size can permit a parts supplier to o

10、ffer more products to customers and to spread overhead costs over greater product volumes to reduce costs and prices. It can also enhance the firms ability to follow and service manufacturers who are producing vehicles and parts throughout the world. Having the ability to make integrated systems and

11、 modules globally, as discussed above, is an important selling point for the parts maker. By acquiring additional manufacturing capabilities to integrate products and reduce costs, large suppliers can increase their value to vehicle manufacturers, which in turn can help them win supply contracts.Int

12、ensity of rivalry: The main competitor of the DIY automotive parts industry is the full service garage with mechanics. The number and age of cars on the road are increasing, as is the number of miles being driven. SUVs, vans and light trucks, which have dominated new car sales the past five years, a

13、re beginning to move out of warranty cycles and into repair cyclesbecoming the types of cars to which AutoZone caters. While people can turn to mechanics, almost half of all U.S. households are engaging in do-it-yourself automotive maintenance and repairs, according to the AAIA. This gives a favorab

14、le outlook for the DIY automotive parts firms, and especially AutoZone, the industry leader. In addition to targeting the do-it-yourself customer, the company also has a commercial sales program in the U.S. (AZ Commercial), which provides commercial credit and delivery of parts and other products to

15、 local, regional and national repair garages, dealers and service stations.Growth: Sources of Growth:Net sales for the 3rd Quarter of 2004 increased $71.6 billion from the same period last year. Their gross profit was $676.2million, or 49.7% of net sales, compared with $598.8million, or 46.5% of net

16、 sales, during the comparable prior year period. AutoZone is experiencing both sales and earnings growth.Operating, selling, general and administrative expenses for the third quarter increased by $47.9million over such expenses for the comparable prior year period, and increased as a percentage of n

17、et sales from 29.3% to 31.2%. 0.4 percentage points of the increase is attributable to the $4.7million gain recognized in the comparable prior year period from the sale of TruckPro. The remaining increase is primarily due to initiatives to refresh approximately 81 stores during the quarter and the o

18、pening of 151 incremental commercial sales programs. Moreover, the company expects to see sales volume increase rapidly over the next year and a half in the SUV parts segment of their market because of the increasing average age of SUVs. The average American SUV is 5.5 years old, and the automobiles

19、 start to depreciate rapidly once they approach 7 years. This bodes well for a do-it-yourself auto parts store. The auto parts industry is in the prime state for consolidation. AutoZone occupies only 14% of the market share for do-it-yourself auto parts stores, and the rest of the market is primaril

20、y composed of smaller mom and pop stores. There is a lot of room for inorganic growth through acquisition within the industry.Basically, it looks as if the company is in the midst of high-quality growth with the option of acquisitions in a business environment that will only become better within the

21、 next year and a half due to increased consumer demand.Quality of Growth:151 new stores4% increase in square footage of existing stores3% increase in sales at existing domestic auto parts stores27% increase in sales in existing AZ commercial storesStrategy: PrioritiesRetail Market (U.S.)Having a 14%

22、 market share and being the leader in the Do-It-Yourself (DIY) automotive aftermarket, the companys goal is to drive even greater market growth.Commercial Market (U.S.)Currently 1% market share as parts provider for repair technicians, the company plans to push its growth by offering automotive tech

23、nicians more full service vehicle solutions.AutoZone de MexicoThe company has begun to build a presence in Mexico retail aftermarket. With an estimated 16 million vehicles in Mexico, the company believes that this market is an attractive long-term growth vehicle.Strategy HighlightMaximize profitable

24、 and continued growth. To capture the markets latent demand.Nearly 25 millions cars (equivalent to $60 billion of routine automotive maintenance) go unperformed each year. The companys goal is to break this maintenance inertiaBring in new customers and drive future growth.Many cars are beginning to

25、move out of warranty cycles and into repair cycles.Continue to expand its retail market share.The company plans to open about 195 retail stores at the end of 2004.Profitability: Cash Conversion Cycle: Measures how quickly a firm sells its goods (inventory), how fast it collects payments from custome

26、rs for the goods (receivables), and how long it can hold onto the goods itself before it has to pay suppliers (payables).AutoZone outperforms its competition in this metric as well as in regard to Net Margin, Return on Assets, and Return on Revenues. PROFITABILITY RATIOS ( autozone )AutoZone Inc.199

27、920002001200220032004Net Margin5.9465%5.969%3.643%8.1%9.5%10.1%ROA7.4%8.1%5.1%12.3%14.1%14.5%ROE-19%55%97%187.18%ROR14%15.9%13.6%18.1%23.5%27.4%Cash Conversion Cycle52 days44 days27 days20 days13 days17 daysDividend YieldNote: Annual Report did not have data to readily calculate ROE for 1999 and 200

28、0Net Margin = Net Income/ SalesReturn on Assets = Net Income/ Average Total AssetsReturn on Equity = (Net Income- Preferred Dividend requirements)/ Average Shareholder EquityReturn on Revenue = Net Income/ Operating Revenue Cash Conversion Cycle = Days in Inventory + Days in Receivables Days Payable

29、 OutstandingDays in Inventory = 365 / Inventory TurnoverInventory Turnover = Cost of Goods Sold/ Inventory ValueDays in Receivables = 365 / Receivables TurnoverReceivables Turnover = Sales / Accounts ReceivableDays Payable Outstanding = 365 / Payables TurnoverPayables Turnover = Cost of Goods Sold/

30、Accounts PayableDividend Yield=Dividend per share/ Share pricePROFITABILITY COMPS ( multexinvestor , companies sites)Company NameNet MarginROAROERORCash Conversion CycleDividend YieldAutoZone Inc.10.04%14.99%187.18%27.36%17 daysGenuine Parts Co.4.32%9.17%16.30%12.39%23 daysPep Boys-Manny Moe and Jac

31、k Inc.1.81%2.19%6.04%3.48%28 daysOReilly Automotive Inc.7.04%9.22%14.26%12.10%38 daysCASH FLOW METRICS ( autozone )(in $1,000s)AutoZone Inc.20002001200220032004Cash from Operations513459739698638Capital Expenditure250169117182185Free Cash Flow263290622516453Cash from Operations Capital Expenditure =

32、 FCF Financial HealthDebt to EquityInterest CoverageCurrent RatioQuick RatioAutoZone.10Genuine Parts Co.25-Pep Boys.58.17OReilly Automotive Inc.11-.52Note: Genuine Parts Co. and OReilly Automotive Inc. did not have Interest Coverage data readily available.Times Interest Earned = EBIT Current Ratio =

33、 Current Assets Interest Expense Current Liabilities Quick Ratio = Current Assets InventoriesCurrent LiabilitiesValuation: VALUATION COMPS S&P did not speak specifically with regards to the automotive parts industry. For the Consumer Goods industry it did stress the P/E ratio as the most relevant me

34、tric. SmartMoney also indicated that in the consumer space the earnings multiples are much more relevant that the sales and book multiples.P/E Ratio (TTM)Price to BookPrice to SalesPEGMarket CapAutoZone.73Genuine Parts Co.78Pep Boys.37.64OReilly Automotive Inc.AutoZone appears on par from the P/Sale

35、s and PEG ratios, undervalued from the P/E ratio, and overvalued from the P/Book ratioGiven all indication P/E is the most relevant, the company looks undervalued, but the other ratios indicate cautionGenuine Parts Co. is the best comparison as the two have similar market caps. Here in terms of both

36、 earnings multiples AutoZone looks undervalued.Valuation model: DCF AnalysisCurrent year (Year 0) EPS0, $6.40 Year 1 Consensus EPS Forecast (FY1), $7.10 Year 2 Consensus EPS Forecast (FY2), $8.10 Analyst consensus long-term growth (Ltg)14.1%Plowback rateSteady-state EPS Growth20.9%Stead-state ROI (c

37、ost of equity)8.1%Current Stock Price81.80 Number of Shares Outstanding (billions)0.08 Total Debt (billions of $)1.87 Total Preferred Stock (billions of $)0.00 Cash, Short-term Investments & non-operating assets (bill $)0.06 Number of Transition Years14 Computing Cost of Equity (re)Risk-free rate (y

38、ield on 30-year U.S. govt. bond)4.98%Raw BetaAdjusted Beta (1/3 + 2/3*raw beta)Risk premium on U.S. market (rm - rf)5.00%Cost of Equity (re)8.11%Value of Equity Per ShareP/V Ratio0.58 In general the DCF model is applicable to the CPCG sector. The model is extremely sensitive to changes in the long-t

39、erm growth rate, and most consumer companies have small growth rates at or slightly above the growth of GDP. AutoZone, however, has a significantly higher growth rate making the model less credible. That being said, even when AutoZones growth rate is reduced to current levels of growth, the stock still appears significantly undervalued.At 14% growth from SmartMoney / Multex / Yahoo - $140At 10% current rate/company predictions - $96The Bull Case:Growth. Not only is AutoZone opening new stores, its current stores sales growth is increasing.Market Position. Au