AutoZone -- Driving Long-Term Value Ahead of Earnings

NEW YORK (The Street) -- Shares of AutoZone (AZO), the second-largest auto parts retailer in the U.S. by revenue, has been on a solid run in 2015. At around $691 a share, the stock is up almost 12% on the year to date, compared with 2% gains for the Dow Jones Industrial Average (DJI).

Just as impressive, if not moreso, is that AutoZone shares continue to dominate the SPDR S&P Retail ETF (XRT), which is up just 3% so far in 2015. The XRT is home to leading retailers like Amazon.com (AMZN) and Costco Wholesale (COST).

So with Autozone stock having already done so well, how much runway is left, and what will drive shares higher? These questions weigh on investors' minds ahead of AutoZone's fiscal third-quarter results due Tuesday before the opening bell.

Sure, there are several reasons to avoid the retail sector altogether -- the April retail data showing that consumers didn't spend as much as the market had hoped is one of them.

But it would be a mistake to sell a winner like AutoZone, especially with auto sales as still projected to climb in 2015. This is due to pent-up demand for newer cars since the average age of vehicles currently on the road is about 11 years, according to Autodata.

And even though April retail sales numbers were tepid, consumers didn't ignore the car lots of vehicle showrooms. The estimated average sale price of new vehicles sold in April climbed 2.6% to more than $33,000. And through the first quarter of 2015, the average sale price new vehicles was up more than 3% to $33,189, according to the National Automobile Dealers Association.

All of this bodes well for AutoZone, which sells parts and services to vehicles of all kinds. More new cars on the road means more shopping for auto parts and accessories. And, while people are driving their cars longer, as indicated by the average age of vehicles being 11 years, it also means more part replacements to keep those cars running.

In other words, whether the car is new or old, it's a business opportunity for AutoZone. The only thing that can hurt the company? -- If consumers were to stop driving altogether, and that's not likely to happen.

This has worked in AutoZone's favor since it has produced higher revenue growth for five consecutive quarters and has been profitable for the last ten quarters. Don't bet on either streak ending Tuesday.

For the quarter that ended May, analysts expect AutoZone to deliver $9.51 in earnings per share on revenue of $2.50 billion, translating to year-over-year increases of 12% and 7%, respectively. For the full year, ending in August, earnings per share of $35.86 calls for a 13% year over year climb, while revenue of $10.14 billion is expected to be up 7.10%.

That both quarterly and full-year earnings are projected to climb at almost twice the rate of revenue implies strong operational focus. That, coupled with the booming auto market suggests strong growth potential in Autozone stock, owing to earnings that are projected to grow annually by more than 13% in the next five years.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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