Q & A

December 07, 2008|By ANDREW LECKEY

Does the recession hurt or help my shares of AutoZone Inc.?

B.R., via the Internet

On the one hand, the retailer of auto parts and accessories benefits from cash-strapped motorists fixing up their cars rather than purchasing new vehicles. The age and mileage of cars on the road continues to rise.

On the other hand, if the economy gets bad enough, they also will defer spending on their existing vehicles. That's why the firm has begun a consumer education campaign to encourage proper vehicle maintenance.

Shares of AutoZone (AZO) are up 1 percent this year, after gains of 4 percent last year and 26 percent in 2006.

AutoZone posted a 12 percent increase in net profit in its fiscal fourth quarter, which ended Aug. 30 and had one more week than the year-earlier period.

It is in a strong financial position, with healthy cash flow to service the modest debt on its balance sheet.

The consensus rating on AutoZone stock from Wall Street analysts is a "hold," according to Thomson Financial, consisting of five "strong buys," two "buys" and 15 "holds."

Stocks of auto suppliers tend to outperform in down economies.

AutoZone has had better profit margins than competitors Advance Auto Parts and O'Reilly Auto Parts. But O'Reilly's all-cash acquisition of CSK Auto will mean stiffer competition for AutoZone's West Coast operations. O'Reilly had been focused on the Southeast and Midwest.

William Rhodes III, a 10-year AutoZone veteran, has been chief executive since 2005 and chairman as well since 2007.

AutoZone earnings are expected to increase 7 percent in the fiscal year ending in August and 12 percent the next year. The five-year annualized growth-rate projection of 12 percent is in line with its auto-parts stores peers.

Q: So much talk about the U.S. dollar getting stronger. What actually makes the dollar stronger or weaker? Is it what the government does?

- D.L.

Interest rates play a major role in the dollar's value, and lately it also has become a haven for the world in volatile financial times.

The dollar was strong in 2005 and 2006 because U.S. interest rates were considerably higher than European rates. That shifted in the last couple of years when U.S. rates came down and European rates went up, pushing the dollar to new lows.

Most recently, even though U.S. rates have come down, European rates have come down even further. That boosted the dollar.

"We're also seeing a flight to quality because people are scared stiff," said David Wyss, chief economist with Standard & Poor's Corp. "They go to the dollar because it is the safest place to be."

E-mail Andrew Leckey at yourmoney@tribune.com.

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