AutoZone Stock Tests Highs After Strong Q3 Earnings

Revenue and EPS beat expectations

AutoZone, Inc. (AZO) shares rose more than 1% during Tuesday's session after the company posted better-than-expected third quarter financial results. Revenue was flat for the quarter, beating consensus estimates by $130 million, while net income came in at $14.39 per share, beating estimates by 81 cents.

Same-store sales fell 1% during the third quarter, which was far better than the 6.3% drop that analysts expected. The retailer added that same-store sales turned meaningfully positive over the past four weeks as stimulus checks began to flow through the economy. Gross margins were stable at 53.6% of sales, suggesting that price cuts weren't responsible for the revenue increase, while inventory increased 2.7% over the same period a year ago.

CFRA reiterated its Strong Buy rating on AutoZone stock and lifted its price target from $1,250 to $1,275 following the financial results. Analyst Garrett Nelson believes that record-high U.S. vehicle age (11.8 years) will drive secular demand and notes the stock's history of outperformance during recessions.

Chart showing the share price performance of AutoZone, Inc. (AZO)

From a technical standpoint, AutoZone stock briefly broke out above reaction highs from early March before giving up ground later in the session. The relative strength index (RSI) moved toward overbought levels with a reading of 69.06, but the moving average convergence divergence (MACD) remains bullish. These indicators suggest that the stock could see a brief period of consolidation before moving higher.

Traders should watch for a breakout from reactions highs of $1,166.20 over the coming sessions. If that happens, traders could see a move toward trendline resistance near $1,250.00 or a move to retest earlier highs of $1,274.41. If the stock breaks down, traders should watch for trendline support at around $1,072.00, although a move lower seems less likely to occur given the bullish momentum.

The author holds no position in the stock(s) mentioned except through passively managed index funds.

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