AutoZone: Gimme Credit sees new 10-year bond outperforming

Gimme Credit analysts issued a report on AutoZone’s (NYSE:) recent bond issuance on Tuesday, highlighting its potential for outperformance. While acknowledging a challenging sales environment, Gimme Credit believes the company’s financial strategy positions it well.

AutoZone issued $1.1 billion in bonds, likely for refinancing purposes, considering its existing short-term debt and achieved target leverage ratio. The analysts praise the company’s commitment to a “careful capital allocation policy,” limiting share repurchases to maintain its target debt metrics.

Despite lower domestic same-store sales, particularly in the DIY segment, Gimme Credit points to AutoZone’s strong EPS growth driven by share repurchases. However, they acknowledge headwinds, including inflation and unpredictable factors impacting sales.

The report also details the positive aspects of AutoZone’s performance. The company boasts an industry-leading operating margin and has benefited from gross margin expansion. While commercial sales growth has slowed, it has lessened the drag on margins.

Gimme Credit highlights AutoZone’s ongoing investments in supply chain improvements, although it has impacted free cash flow. However, the firm remains confident in the company’s leverage management and expects continued adherence to its financial policy.

Looking ahead, Gimme Credit sees long-term tailwinds for AutoZone due to factors like the increasing age of vehicles on the road. They conclude by expressing confidence that the newly issued 10-year bond, priced at T+117, will outperform.