AutoZone’s Stock Essay

AutoZ stars considerholders had make merryed buckram harm handgrip since 1997, with an aver shape up annual reduce of 11.5%. Over the anterior five years, AutoZones deport legal injury has change magnitude dramatically. On February 1. 2012 the var. price was $348 compared to the $125 on February 1. 2007. The soused price appreciation resulted from several occurrences nearly of them are U.S. delivery recession and donation purchase syllabus. Auto- lay out business was roundwhatwhat counter-cyclical. familiaritys outgrowth and store price were directly related to the parsimoniousness and matter of miles a vehicle had been driven. As the age of car change magnitude, more repairs were required. Beca workout of these originators, AutoZones crease price was signifi endtly improving from 2008. AutoZones monetary statements reverberate the stock price performance. Net sales earn developmentd for 30.85% from 2007 to 2011. Cost of sales in like manner addd dur ing that pointedness, but at lower rate of 27.30%, what helped in additional improvement of gross profit.AutoZones increase operate profit indicates the efficiency and profitability of the comp both. Further, the increase of operating profit lead to the slight increase of operating margin, from 17.10% in 2007 to 18.52% in 2011. One monetary account that is strongly related to the stock price performance is EPS. EPS, a key driver of stock price, bedevil been increasing at an extremely senior high rate. From 2007 to 2011, basic EPS have increased for 131%, and diluted EPS have increased for 128%. other consequential financial measure is breeze through ratio. PEG ratio is been constantly decreasing, which is a good sign for the company and investors. Decrease of PEG ratio signals a greater assess for AutoZones company, beca expend up its investors are going to pay less for individually unit of earnings growth.How does a stock buyback work? Why would a company use this ta ctic?What impact does it have on EPS? ROIC? job repurchase is one of the methods of returning exchange digest to its investors. A company buys game its own shares either from marketplace or from their own shareholders who want to carry their shares. Buying a shares back, company is reducing the offspring of shares outstanding, increasing the shareholders order and raising the price of the stock. Company can also use this method to obstruct a hostile takeovercover up poor performancecreate more showy financial ratiossignal the market that the company is strongcreate tax efficient way to return investors moneyThe biggest impact of share repurchasing program is apparent in EPS of the company. EPS is calculated as Net Income separate by the average outstanding shares. Since buying back its own shares is reducing the event of shares outstanding, it automatically 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 suppose that the income is going to stay the very(prenominal), but the number of shares outstanding is going to decrease for 5,000, then we develop a higher EPS of $9.19. This is how a share repurchase work. It reduces the number of shares outstanding, resulting in improved EPS. Share repurchase also affect the ROIC, which is one of the best prosody to evaluate corporates performance. ROIC eliminates much of the non-economic accounting noise 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 impart reduce a companys cash holdings, and on that pointfore reducing the total assets and total shareholders e foresweary. As a result, ROIC will improve subsequent to a share repurchase.It is noniceable that the growth was accelerated from 2008, when the economy recession occurred. T ogether with share repurchase program, this devil effect had a large 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 approximately important measures that investors look at because EPS measures companys performance. In 2007, AutoZone had 69,844 shares outstanding, while 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 C ompany, more shares outstanding will result in lower share price, while reduced number of 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 hypothesis a radical stores or by acquisition. The first advise considers opening a new stores in domestic and foreign markets. The expansion is unavoidable to override the competition and to keep its position of confidential information retailer of automotive replacement parts 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 Rico and Mexico. Those stores have been operating successfully, giving a co mpany more reasons to keep on with its overseas investments. Next AutoZones target is Brazilian market. Companys plan is to expand there over the next several years. Overseas investments can be very lucrative for AutoZone, but they also bear a lot of risk.All investments should be developed very carefully, with a high take 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 last couple of years. Even though AutoZones management was not seeing any signs of oversaturation at that time, that doesnt mean that they will not see it in the near futurity. I count there are still some drop off attractive locations in the U.S., but at some point, most of the good locations will be cover by the auto parts retail stores, and the be locations would not be a profitable investment. Another reason for acquisition is that such stores would be profitable mu ch 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(predicate) 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 stake 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 speculative sign. The reason for his liquidation might be the necessitate for funds or some other private 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 investor s, 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 play along with its share repurchase program even after(prenominal) 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.