AutoZone, Inc. (AZO), O’Reilly Automotive Inc (ORLY) & The Pep Boys – Manny, Moe & Jack (PBY): Harsh Winter, Springing Gains

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AutoZone, Inc. (NYSE:AZO)After a long and harsh spell of winter, US investors can find solace in spring, which holds nothing less than a solid promise for some retailers. Auto-parts retailers such as AutoZone, Inc. (NYSE:AZO) , O’Reilly Automotive Inc (NASDAQ:ORLY), and The Pep Boys – Manny, Moe & Jack (NYSE:PBY) are finding it better in spring with better-than-expected earnings.

AutoZone Smashed Earnings Expectations

AutoZone, Inc. (NYSE:AZO) smashed earnings expectations for the latest quarter. The company recorded its 27th consecutive quarter of double-digit growth in earnings per share (EPS) by registering a 6.8% jump in net profit to $17 million. Double-digit EPS growth was made possible by its share-repurchase program, under which AutoZone bought back 833,000 shares during the quarter. Growth in both net income and EPS was driven by a 4.5% jump in revenue to $2.2 billion for the quarter ended May 4.

This is on expected lines, as the company earlier projected faster growth in the second half of the financial year as a severe winter was expected to drive up auto repairs. This was exactly opposite of the scenario we saw last year, when warmer- than-usual winter weather required fewer repairs. The stock currently trades at a trailing-12 months price-to-earnings ratio of 17.1 and looks attractive at a forward multiple of 13.75.

Ways to play the bullish sentiment

The largest auto-parts retailer in the US has beaten Street expectations, and it sends a strong signal about the fundamental strength of the sector. However, buying the stock is not going to yield good returns now and investors need to think beyond the market leader.

O’Reilly Automotive Inc (NASDAQ:ORLY) offers a way to play this bullishness. The company will be out with its second-quarter results in July and is likely to follow what we saw with AutoZone, Inc. (NYSE:AZO). O’Reilly Automotive Inc (NASDAQ:ORLY) trades at a price-to-earnings ratio of 22.6, which is slightly above AutoZone but that is due to stronger fundamentals.

O’Reilly Automotive Inc (NASDAQ:ORLY) has a debt-to-equity ratio of only 0.5 compared to negative equity in the case of AutoZone, Inc. (NYSE:AZO). A far more important factor is that the company is likely to continue posting better results, which is reflected in its forward price-to-earnings ratio of 17. The company expanded its operating and net profit margins during the first quarter – a trend which may very well extend to the second quarter due to its efficient capital structure.
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