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Gimme Credit analysts released a report on AutoZone’s (NYSE:) latest bond issue on Tuesday, highlighting the potential for outperformance. Recognizing the challenging sales environment, Gimme Credit believes the company’s financial strategy positions it well.
AutoZone issued $1.1 billion worth of bonds, likely for refinancing purposes, given its existing short-term debt and the target leverage ratio it achieved. Analysts praise the company’s commitment to a “careful capital allocation policy,” limiting stock buybacks to maintain target debt metrics.
Despite declining domestic 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 unforeseen 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 business sales growth has slowed, it has eased pressure on margins.
The Gimme Credit program highlights AutoZone’s continued investment in supply chain improvement, despite its impact on free cash flow. However, the company 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 such as the increasing age of vehicles on the road. They concluded by expressing confidence that the newly issued 10-year bond, priced at T+117, will outperform.
