Gene Marcial's Stock Picks April 1, 2009, 12:01AM EST

Marcial: AutoZone Is in the Fast Lane

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BW's Gene Marcial

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Analyst John Lawrence of investment firm Morgan Keegan (RF) says favorable "industry tailwinds should continue, with sharp declines in new-car sales and a record number of aged vehicles on the road." And the trend of closing car dealerships, he adds, bodes well for higher demand in the commercial repair shops. AutoZone is well positioned, he says, to benefit from an improving sales trend. It has the resources and strategy to gain market share from its competitors, says Lawrence, who rates the stock outperform,

In terms of the closely watched sales-to-square-footage ratio, AutoZone excels, "and sports higher gross, operating, and net margins than any of its peers," notes analyst Michael Souers of Standard & Poor's, who rates the stock a buy. (Standard & Poor's, like BusinessWeek, is a unit of The McGraw-Hill Cos. (MHP).)

Largest Investor Buys Up More

So if in bad times and a weak economy AutoZone continues to outperform both the market and its peers, what will an economic recovery bring? AutoZone shares have zoomed past others despite some institutional investors reducing their stakes in the stock, such as Fidelity Management. But they're holding on to some shares: In the case of Fidelity, it still has a stake of 3.8% after selling 170,956 shares as of its December filing, according to Bloomberg.

On the other hand, bigger investors have continued to add to their holdings. One of them, RBS Partners, the largest single investor in AutoZone with a 42% stake, bought 78 million more shares as of December.

The long-term outlook remains bright, some analysts believe. "AutoZone's store expansion and a growing commercial business will likely support long-term earnings advances," says analyst Damon Churchwell of independent research outfit Value Line (VALU), which rates the stock No. 1 for timeliness, the highest in its rating system.

If the pros are right, AutoZone's rally may have more mileage left.

Unless otherwise noted, neither the sources cited in Gene Marcial's Stock Picks nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.