AutoZone (NYSE: AZO) is the leading U.S. retailer and distributor of automotive replacement parts and accessories. Each store carries an extensive product line for cars, sport utility vehicles, vans and light trucks. Most outlets provide commercial credit and prompt delivery of products to repair shops. AutoZone operates more than four thousand stores in the U.S., Puerto Rico and Mexico.
The company pleased investors earlier in the month, when it reported fiscal Q1 EPS of $2.02 and revenues of $1.46 billion. Analysts had been expecting $1.91 and $1.44 billion. The news popped the shares out of a November "cup" into the December "handle" of a Cup & Handle formation. The price is now showing signs of completing the pattern with a bullish rise from the right-hand side of the "handle".
Brokers recommend the shares with four "strong buys", twelve "holds" and three "sells". Analysts see a 12% average annual growth rate, through the next five years. The AZO P/E ratio (13.86), PEG ratio (1.12), Price to Sales ratio (1.25), Price to Cash Flow ratio (10.11), Price to Free Cash Flow ratio (11.30), EPS Growth rate (16.76%), Return on Assets (12.74%), Return on Investment (23.61%) and Return on Equity (170.49%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past 52 weeks, it has traded between $103.40 and $140.29. A stop-loss of $106.90 looks good here.
The country's largest automotive parts and accessories company, AutoZone Inc. (NYSE: AZO) posted record sales and earnings for 1Q FY 2008. Net sales increased 4.5% to $1.5 billion. Same store sales increased 1.3%. Net income increased 7% to $132.5 million, and gross profit margin improved slightly.
Operating expenses increased slightly, but this additional cost was offset by a much larger reduction in net inventory per store. AutoZone uses a supplier-owned pay-on-scan inventory control system in order to maximize inventory efficiency and reduce cost of goods sold.
During 1Q the company repurchased $350 million worth of stock at an average price of $121 per share, quite a bargain given that the stock recently traded at just under $130 before retreating to $124.
AutoZone (NYSE: AZO) is scheduled to report earnings before the market opens on Tuesday, December 4, 2007 with analysts estimating it will report $1.91 per share. Last time AZO analysts estimated that AutoZone would report $3.25 and just missed analyst's expectations with earnings of $3.23.
Beating estimates is not a given with AutoZone as it has missed five of the last 12 times is reported. But just because it misses does not mean those stock will go down; most of those misses were small and four of the last five times the stock missed it actually went up after earnings. In fact, the stock has rose 9 of the last 12 times it reported earnings.
MOST NOTEWORTHY: The small-cap bank sector, Waste Connections, Warnaco Group and Intersections were today's noteworthy upgrades:
Lehman upgraded the small-cap bank sector to Neutral from Negative as they expect the group to benefit from the decline in short-term interest rates and the steeping yield curve. The firm upgraded Associated Banc-Corp (NASDAQ: ASBC), Pacific Capital Bancorp (NASDAQ: PCBC) and Westpac Banking Corp (NYSE: WBK) to Equal Weight from Underweight.
Friedman Billings added Waste Connections (NYSE: WCN) to its Top Picks list. The firm believes the company can outperform the group and overall market in an economic downturn.
Warnaco Group (NASDAQ: WRNC) was upgraded to Overweight from Neutral at JP Morgan on valuation and growth potential.
JMP Securities' checks indicate that Intersections (NASDAQ: INTX) is on track to meet EPS expectations for the quarter and is well positioned to beat their 2008 EPS estimate of 80c. The firm raised shares to Strong Buy from Outperform.
AutoZone, Inc. (NYSE: AZO) implied volatility elevated into mid September earnings per share (EPS) and outlook: AutoZone is expected to report earnings per share on September 18. AZO management will be speaking at Goldman Sachs Group, Inc. (NYSE: GS) 14th Annual Retailing Conference on September 6. AZO September option implied volatility of 36 is above its 26-week average of 25, according to Track Data, suggesting larger price risks.
Cisco Systems, Inc. (NYSE: CSCO) implied volatility flat into September 5 analyst meeting:Cisco is recently up 40 cents to $31.83. CSCO will be holding an analyst meeting in San Jose, CA, on September 5. BAMO says, "we believe the meeting will be used to showcase CSCO's growing technology platform and emphasize the company's mantra of the network as the IT platform." CSCO September option implied volatility of 26 is near its 26-week average of 28, according to Track Data, suggesting non-directional risk.
Daily options update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
MOST NOTEWORTHY: Marvel Entertainment (MVL), AutoZone (AZO), Home Depot (HD), Molson Coors (TAP) and Semtech (SMTC) were some of today's noteworthy upgrades:
Matrix upgraded Marvel Entertainment (NYSE: MVL) to Buy from Hold as they don't think the company's improving performance is reflected in its falling stock price. They think Marvel represents a good entry point at current levels.
Kevin Dann upgraded shares of AutoZone (NYSE: AZO) to Buy from Hold on valuation and highlighted their belief that AutoZone may not be seeing as much sales weakness as investors expect. They recommend taking advantage of the recent share weakness and raised their target to $135 from $125.
Gabelli recommends Home Depot (NYSE: HD) as a long-term buy with a $43 target, upgraded shares from Hold, with the Supply division uncertainty now eliminated. They view the sale positively, even at the lower price.
JP Morgan upgraded Molson Coors (NYSE: TAP) to Overweight from Neutral, and believes Molson will monetize its solid balance sheet and free-cash flow yield to benefit the shareholders. They also consider valuation to be attractive.
Semtech (NASDAQ: SMTC) was upgraded to Outperform from Market Perform at William Blair following the strong Q2 report and outlook...
OTHER UPGRADES:
Big Lots (NYSE: BIG) was upgraded to Market Outperform from Market Perform at Avondale.
Richard Rhodes, professional trader, money manager and editor of The Rhodes Report was one advisor who accurately forecast the recent decline and moved into short positions going into this past week.
And while he sees the potential for a near-term bounce, this week's action leads the advisor to say, "A major trading high has formed, which will lead to a -10% to -20% correction...perhaps deeper."
He explains, "If there was ever a 'bell' to signal the end of an intermediate or long-term rally; we think the decline from the S&P 500 high of 1565 to yesterday's low at 1465 suffices as such."
The constriction of credit and liquidity, he notes, has led to very poor advance/decline figures. As such, he suggests being a seller during any rallies that result fro the "month-end bullish pattern and short-term oversold condition."
Indeed, even in his Long Only Portfolio – a portfolio that as its name implies only holds long position – he now says, "We are going to a very rare, but very prudent 'no position' stance." As for his Long/Short Portfolio, he says, "We are now aggressively short."
MOST NOTEWORTHY: Dendreon Corp (DNDN), Cubic Corp (CUB), Endo Pharmaceuticals (ENDO), Northrop Grumman (NOC) and Royal Dutch Shell (RDS.A) were today's notable downgrades:
JMP Securities downgraded shares of Dendreon Corp (NASDAQ: DNDN) to Market Underperform from Market Perform based on the company's uncertain product pipeline and the recent SEC filing that revealed that certain officers and directors are facing potential shareholder lawsuits regarding trading activities.
Friedman Billings cut Cubic Corp (AMEX: CUB) to Underperform from Market Perform on valuation.
RBC Capital downgraded Endo Pharmaceuticals (OTCBB: ENDP) to Sector Perform from Outperform following the company's withdrawal of guidance pertaining to its NDA for the Ketoprofen patch.
Northrop Grumman (NYSE: NOC) was cut to Neutral from Overweight at JP Morgan on valuation. UBS cut Royal Dutch Shell to Neutral from Buy on valuation...
OTHER DOWNGRADES:
Robinson Humphries downgraded Ruby Tuesday (NYSE: RT) to Neutral from Buy.
Montgomery downgraded shares of Taleo Corp (NASDAQ: TLEO) to Hold from Buy.
Credit Suisse downgraded AutoZone (NYSE: AZO) to Neutral from Outperform.
MOST NOTEWORTHY: The auto parts retail sector, Electronics Arts (ERTS), Cinemark Holdings (CNK) and Monster Worldwide (MNST) were today's more noteworthy initiations:
Wachovia initiated coverage on AutoZone (NYSE: AZO), Advance Auto Parts (NYSE: AAP) and O'Reilly Automotive (NASDAQ: ORLY) with Outperform ratings. The firm sees upside for AutoZone from share buybacks, Advance Auto Parts from improved cost control and margins, and O'Reilly Automotive from share gains and fundamental performance.
First Albany started Electronic Arts (NASDAQ: ERTS) with a Buy rating and sees significant upside in the first-half of 2008.
BMO Capital started Cinemark (NYSE: CNK) with an Outperform rating, citing Cinemark's internal growth opportunities as well as its international opportunities in Latin America.
American Tech started Monster Worldwide (NASDAQ: MNST) with a Neutral rating, saying fundamentals and the macro backdrop remain uncertain...
OTHER INITIATIONS:
Bernstein initiated coverage on Google (NASDAQ: GOOG) and eBay (NASDAQ: EBAY) with Outperform ratings and a $635 target and $39 target, respectively, and Amazon.com (NASDAQ: AMZN), InterActive Corp (NASDAQ: IACI) and Yahoo! (NASDAQ: YHOO) with Market Perform ratings and a $65 target, $38 target and $29 target, respectively.
MOST NOTEWORTHY: AutoZone, Inc (AZO), Blue Nile, Inc (NILE), MetLife, Inc (MET), Analog Devices, Inc (ADI) and Advanced Micro Devices (AMD) topped out today's list of noteworthy downgrades:
Citigroup cut AutoZone (NYSE: AZO) to Hold from Buy with a $145 target based on valuation.Gabelli also downgraded shares of AutoZone to Hold from Buy.
Lehman downgraded shares of Blue Nile (NASDAQ: NILE) to Equal Weight from Overweight, citing valuation and competitive concerns from Amazon.com (AMZN), which may look to strengthen their position in the diamond engagement market.
MetLife (NYSE: MET) was cut to Neutral from Buy on valuation.
Analog Devices Inc (NYSE: ADI) was cut by Credit Suisse and JP Morgan to Neutral from Outperform, by Sanders Morris to Neutral from Buy and by Merrill Lynch to Sell from Neutral after the company reported weak Q2 results.
Matrix downgraded Advanced Micro Devices (NYSE: AMD) to Strong Sell from Hold based on the loss of market share to Intel Corp's (INTC) new products...
MOST NOTEWORTHY: Three food companies, TiVo Inc (TIVO), Circuit City Stores, Inc (CC) and AutoZone, Inc (AZO) were today's most noteworthy downgrades:
Deutsche Bank downgraded Groupe Danone (NYSE: DA), Unilever (NYSE: UL) and Nestle (OTC: NSRGY) to Hold from Buy as the firm believes the three food producers will suffer from rising prices for agricultural commodities.
SMH Capital downgraded shares of TiVo (NASDAQ: TIVO) to Sell from Hold on valuation as the firm believes the market has already priced in considerable penetration of the new TIVO/Comcast bundled DVR into Comcast's (CMCSK) core digital sub base.
Matrix downgraded Circuit City Stores (NYSE: CC) to Strong Sell from Hold as the firm believes increasing competition is leading to lower selling prices and decreasing profits.
BMO Capital cut AutoZone (NYSE: AZO) to Underperform from Market Perform on expectations that higher gas prices will be a drag on discretionary product sales...
Just how likely is a takeover of Office Max (NYSE: OMX)? The stock jumped up yesterday 8% as analysts speculated a takeover was likely. As a former employee of Office Depot (NYSE: ODP) I have followed the retail office supply sector closely and I still own shares in the company. To set the stage lets look at the last ten years in the industry.
There are three big players in the profitable retail office supplies industry are Staples(NASDAQ: SPLS), Office Depot (NYSE: ODP) and Office Max (NYSE: OMX).
Staples, the market leader in the industry has 1,884 stores and a market capitalization of 18 billion. Staples has been leaner and efficient in getting products to consumers and took the lead from Office Depot a couple of years ago.
You know the charge: Wal-Mart kills small businesses. If one of the retailing juggernaut's Supercenters moves into your town, the logic goes, all the mom-and-pop shops that have faithfully served residents for decades will soon have no choice but to shutter their businesses.
But it doesn't always work that way. In some cases it actually makes sense for businesses to locate next to a Wal-Mart. You may be able to entice some of those throngs of bargain-hunters to stop by your establishment and spend a few bucks. But before you consider this strategy, be sure you can compete head-on with the retailing Goliath on price or selection.
I recently wrote about how Goodwill Industries -- one of the top thrift stores in the country -- is locating more of its stores adjacent to Wal-Mart Stores, Inc. (NYSE: WMT). In fact, that has become standard practice in the state of Ohio apparently. Why? Goodwill explained that both it and Wal-Mart serve the same types of customers ( or "demographic" as they call it in retail-speak). Sounds like a smart strategy to me.
But what about other retailers? From what I have seen, Wal-Mart Supercenters are retail anchors almost everywhere they are built. You see Blockbuster Inc. (NYSE: BBI), RadioShack Corp. (NYSE: RSH), Dollar Tree Stores (NASDAQ: DLTR) and chain restaurants like McDonald's Corp (NYSE: MCD) and Wendy's International (NYSE: WEN) pop up right next to Wal-Mart Supercenters. Why? Seems simple -- to get the traffic Wal-Mart has in and out of its parking lot.
MOST NOTEWORTHY: Blockbuster (BBI) and Borders Groups (BGP) were the notable companies on today's downgrade list
Blockbuster (BBI) was downgraded to Hold from Buy at Citigroup on valuation, as they believe Blockbuster's catalyst are priced into the stock after the recent rally;
Borders Groups (BGP) was downgraded to Neutral from Outperform with a $24 target at Credit Suisse, citing valuation and the timing of its turnaround.
OTHER DOWNGRADES:
Kevin Dann believes shares of AutoZone (AZO) have gotten ahead of themselves while earnings have slowed and downgraded the specialty auto retailer to Sell from Hold with a $105 target.
Additionally, American Eagle (AEOS) was downgraded to Hold from Buy at Matrix USA, citing valuation.
Novellus (NVLS) was downgraded to Sell from Neutral at Goldman Sachs; the firm believes NAND weakness would drive worse-than-expected fundamentals and finds it "extremely unlikely" they would be acquired at these levels.
Affiliated Computer Services (ACS) and Electronic Data Systems (EDS) were both downgraded to Reduce from Neutral at UBS.
Ever wanted to manage your portfolio like your very own hedge fund? If so, then there's no reason to re-invent the wheel. There are thousands of pro investors who live by a simple imperative: earn or die. One strategy for building your own wealth, therefore, is to select a few with proven track records, concentrated portfolios, and low turnover, and pore over their quarterly regulatory statements.
In a recent Barron's article, Andrew Barry found five such mavericks and the names that were among their top holdings as of September 30, when the last 13-F reports were filed. Sure, your timing might be off because the information is 45 days old, but these investments can at least shed light on what the best brains are thinking and possibly indicate similar plays in hot sectors.
the leading U.S. retailer and distributor of automotive replacement parts and accessories. Each store carries an extensive product line for cars, sport utility vehicles, vans and light trucks. Most outlets provide commercial credit and prompt delivery of products to repair shops. AutoZone operates more than four thousand stores in the U.S., Puerto Rico and Mexico.
Analysts had been expecting $1.91 and $1.44 billion. The news popped the shares out of a November "cup" into the December "handle" of a Cup & Handle formation. The price is now showing signs of completing the pattern with a bullish rise from the right-hand side of the "handle".
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AutoZone, Inc.
Richard Rhodes, professional trader, money manager and editor of 
Just how likely is a takeover of 
You know the charge: Wal-Mart kills small businesses. If one of the retailing juggernaut's Supercenters moves into your town, the logic goes, all the mom-and-pop shops that have faithfully served residents for decades will soon have no choice but to shutter their businesses.
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