AutoZone’s Stock Essay

AutoZ wizards dispenseholders had tasteed strong m adepttary value mouthful since 1997, with an average annual guide of 11.5%. oer the previous five years, AutoZones memory board determine has increase dramatically. On February 1. 2012 the stock price was $348 compared to the $125 on February 1. 2007. The strong price appreciation resulted from several occurrences virtually of them are U.S. economy respite and share salvation program. Auto-part business was somewhat counter-cyclical. Companys growth and stock price were directly think to the economy and bod of miles a vehicle had been driven. As the age of car increased, more repairs were required. Because of these reasons, AutoZones stock price was chief(prenominal)ly improving from 2008. AutoZones fiscal statements reflect the stock price process. electronic network sales deem increased for 30.85% from 2007 to 2011. Cost of sales in addition increased during that stay, but at lower rate of 27.30%, what helped in additional emolument of gross profit.AutoZones increasing in operation(p) profit indicates the efficiency and positivity of the fellowship. Further, the increase of operating profit led to the slight increase of operating margin, from 17.10% in 2007 to 18.52% in 2011. One monetary measure that is strongly related to the stock price performance is EPS. EPS, a key driver of stock price, have been increasing at an extremely high rate. From 2007 to 2011, basic EPS have increased for 131%, and diluted EPS have increased for 128%. Another important financial measure is PEG ratio. PEG ratio is been constantly decreasing, which is a trustworthy sign for the company and investors. Decrease of PEG ratio signals a great value for AutoZones company, because its investors are spillage to pay less for individually unit of earnings growth.How does a stock salvation work? wherefore would a company use this tactic?What impact does it have on EPS? ROIC?Stock repurchase is one of the metho ds of returning cash back to its investors. A company buys back its hold shares either from marketplace or from their own shareholders who want to sell their shares. Buying a shares back, company is cut back the number of shares outstanding, increasing the shareholders value and raising the price of the stock. Company can also use this method to pr all the samet a hostile takeover over-correct up poor performancecreate more attractive financial ratiossignal the market that the company is strongcreate tax competent way to return investors moneyThe biggest impact of share repurchasing program is distinct in EPS of the company. EPS is calculated as Net Income divided by the average outstanding shares. Since buying back its own shares is reducing the number of shares outstanding, it railway carmatically increases the EPS. In 2007, AutoZones Net Income was $595,672 and the number of shares outstanding was 69,844. This resulted in $8.53 EPS. If we cerebrate that the income is going to stay the same, but the number of shares outstanding is going to light for 5,000, then we get a higher EPS of $9.19. This is how a share repurchase work. It reduces the number of shares outstanding, resulting in improved EPS. sell repurchase also be active the ROIC, which is one of the best metrics to evaluate corporates performance. ROIC eliminates oftentimes of the non-economic accounting echo and impacts of financial leverage. AutoZones management was very focused on this measurement, because ROIC was a primary way to measure value creation for the companys capital providers. On the balance sheet, a share repurchase will reduce a companys cash holdings, and therefore reducing the total assets and total shareholders equity. As a result, ROIC will improve subsequent to a share repurchase.It is noticeable that the growth was accelerated from 2008, when the economy recession occurred. Together with share repurchase program, this two effect had a monstrous impact on creating a desirable ROIC. Taken all of these into account, AutoZones ROIC is indicating that the company offers a strong returns for its investors.How much of AutoZones stock price performance should we attribute to the share repurchase program?Share repurchase program is strongly related to the increase of AutoZones stock price. Share repurchase program, as mentioned above, reduces the number of shares outstanding, and therefore, creates a strong EPS and increases the price of the stock. EPS is one of the most important measures that investors look at because EPS measures companys performance. In 2007, AutoZone had 69,844 shares outstanding, temporary hookup in 2011 the number of shares was reduced to 43,603. This led to an increase of 128% in EPS, from $8.53 in 2007, to $19.47 in 2011. Next, the stock price increased from $120 to $298 in the same time period. Given the same capital value for AutoZone Company, more shares outstanding will result in lower share price, while reduced number o f shares outstanding will impact the price of a share to grow. Q4. Assume that AutoZone is planning to stop its share repurchase program. What would be the best alternative use of those cash flows? Why?If we assume that AutoZone is going to quit its share repurchase program, the best alternative to use the cash flows would be to expand its business,either by opening a brisk stores or by acquisition. The first hypnotism considers opening a impertinent stores in domestic and foreign markets. The expansion is necessary to override the disceptation and to keep its position of leading retailer of automotive replacement move and accessories in the United States. Leading retailer position in the U.S. gives AutoZone more motivation to expand overseas. AutoZone already owns some stores outside the U.S., in Puerto anti-racketeering law and Mexico. Those stores have been operating successfully, giving a company more reasons to insure with its overseas investments. Next AutoZones target i s Brazilian market. Companys plan is to expand there over the next several years. abroad investments can be very productive for AutoZone, but they also bear a lot of risk.All investments should be developed very carefully, with a high level of cautions and with expertise person for targeted markets in their management. The second proposition is growth by acquisition. U.S. market became oversaturated with auto part stores in the finale couple of years. Even though AutoZones management was not perceive any signs of oversaturation at that time, that doesnt mean that they will not view it in the near future. I believe there are smooth some free attractive locations in the U.S., but at some point, most of the good locations will be covered by the auto parts retail stores, and the re maining locations would not be a profitable investment. Another reason for acquisition is that such stores would be profitable much more quickly than it would be opening of a new stores. The return time for AutoZone would be shorten. So far, AutoZone has acquired over 800 stores from competitors.What should Johnson do about his holdings of AutoZone shares?Johnson had one of his largest holdings in AutoZones company. The fact that Johnson was concerned about is that Lampert, AutoZones main shareholder, was rapidly liquidating his back up in the company. Johnson was concerned about the future performance of the stock price. He was not sure what the Lamperts reason for liquidating his stake was. This can also have a negative influence on other investors. Lumperts liquidation is not necessarily a worst sign. The reason for his liquidation might be the need for funds or some other personal reasons. I believe that Johnson should keep hisholdings in AutoZones company.AutoZones financial measures indicates that the company is been constantly improving. The most important measures for investors, EPS, ROIC and stock price, are been increasing at a desirable rates. AutoZones investors have been enjoying strong price appreciation, and I believe they will enjoy it also in the future. Lumperts liquidation should not affect the share repurchase program. Company should continue with its share repurchase program even after Lampert liquidates all his stake. There is no signs in financial statements that the company is going to have a decrease in the stock price. AutoZone has created a desirable value for the company over the long time period and I believe in the continuing future growth of this company.