Analyzing Buy or Hold for 3 Auto Stock Picks

The automotive industry seems well-prepared to navigate market fluctuations, thanks to its embrace of technological advancements and its ability to adapt to changing consumer preferences. Against this backdrop, in this piece, I have highlighted the fundamentals of three auto stocks: AutoZone, Inc. (AZO), Nissan Motor Co., Ltd. (NSANY), and LCI Industries (LCII).

After assessing these stocks, I believe AZO and NSANY should be ideal buys. However, keeping a watch on LCII for a better entry point could be wise for now. But before we dig into the fundamentals of these stocks, let’s briefly examine the industry’s prospects first.

Global Electric Vehicle (EV) sales achieved a new milestone in November. Global sales of Battery Electric Vehicles (BEV) and plug-in hybrids (PHEV) experienced a 20% increase in November compared to the previous year. BEV and PHEV sales reached a new monthly record of 1.40 million units, marking an increase from 1.10 million in November 2022.

Fueled by increasing demand for EVs, in November, new vehicle sales in the United States totaled 1,242,376 units, reflecting an 8.8% year-over-year increase and a 2.3% increase sequentially.

Furthermore, with the introduction of EVs in the market and their increasing sales, the demand for automotive motors is expected to experience growth in the upcoming years. The global automotive motors market is anticipated to reach approximately $42.86 billion by 2032, growing at a CAGR of 4.4% from 2023 to 2032.

Meanwhile, in response to changing consumer preferences favoring fuel efficiency, technology, and sustainability, auto parts manufacturers are evolving to meet the rising demand propelled by the increased popularity of electric vehicles.

This rising demand for EVs has led to heightened requirements for components such as batteries, electric drivetrains, and advanced sensor systems. The global auto parts industry is projected to grow at a CAGR of 6.3% between 2023 and 2028 to reach $939.21 billion by 2028.

Keeping all these factors in mind, let’s delve deeper into the fundamentals of the featured auto stocks in detail:

Stocks to Buy:

AutoZone, Inc. (AZO)

AZO retails and distributes automotive replacement parts and accessories. The company provides various products for cars, sport utility vehicles, vans, and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories, and non-automotive products.

On December 20, AZO revealed that its Board of Directors approved the repurchase of an additional $2 billion worth of the company's common stock as part of its ongoing share repurchase initiative. With this latest authorization, AZO’s total amount approved for share repurchases since the inception of the program in 1998 now stands at $37.70 billion,

In addition, the Chief Financial Officer of AZO, Jamere Jackson, highlighted the company's commitment to a disciplined capital allocation policy aimed at fostering topline growth and maintaining ample liquidity.

The stock’s trailing-12-month EBITDA margin of 23.26% is 113.2% higher than the 10.91% industry average. Likewise, AZO’s trailing-12-month net income margin of 14.62% is 223.5% higher than the industry average of 4.52%.

For the fiscal first quarter, which ended on November 18, 2023, AZO’s net sales increased 5.1% year-over-year to $4.19 billion, while its gross profit grew 10.9% from the year-ago value to $2.21 billion.

The company’s net income came in at $593.46 million and $32.55 per share, up 10% and 18.6% from the prior-year quarter, respectively. In addition, AZO’s operating profit improved 17.4% year-over-year to $848.60 million.

Street expects AZO’s EPS and revenue for the fiscal second quarter (ending February 2024) to increase 7.8% and 4.5% year-over-year to $26.57 and $3.86 billion, respectively. Moreover, the company has an excellent earnings surprise history, surpassing the EPS estimates in each of the trailing four quarters.

Over the past year, AZO’s shares have surged 9.4% to close the last trading session at $2607.34.

AZO’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.  

It has an A grade for Quality. In the 62-stock A-rated Auto Parts industry, it is ranked #28. Click here to see AZO’s ratings for Growth, Value, Momentum, Stability, and Sentiment.  

Nissan Motor Co., Ltd. (NSANY)

Headquartered in Yokohama, Japan, NSANY manufactures and sells vehicles and automotive parts worldwide. It sells vehicles under the Nissan and Infiniti brands. The company’s offerings include vehicle and vehicle parts; engines; manual transmissions; automotive parts; axles; and other related components.

On December 18, NSANY announced the establishment of a joint research center in collaboration with Tsinghua University. The research is scheduled to commence in 2024 and will focus on effective communication strategies for Gen Z.

Furthermore, the scope of the research will extend to explore the role and social responsibility of automakers within the Electric Vehicle (EV) ecosystem, encompassing areas like charging infrastructure, battery recycling, re-use, and energy management.

On November 8, NSANY unveiled an augmented investment plan for 2023-2025, reaching a potential R$ 2.80 billion ($573.57 million) in Brazil. Through this significant investment, NSANY aims to introduce new equipment and implement improvements at its Resende Industrial Complex to facilitate the production of two new SUVs.

One of these models will continue the successful legacy of the Nissan Kicks, a widely acclaimed brand in Brazil and around the world.

NSANY’s trailing-12-month cash per share of $2.37 is 2.3% higher than the $2.32 industry average. Likewise, its trailing-12-month CAPEX/Sales of 12.27% is 304% higher than the industry average of 3.04%.

For the fiscal second quarter, which ended on September 30, 2023, NSANY’s net sales increased 24.6% year-over-year to ¥3.15 trillion ($21.93 billion), while its gross profit rose 33% from the prior-year quarter to ¥572.31 billion ($3.98 billion).

The company’s net income and comprehensive income came in at ¥196.91 billion ($1.37 billion) and ¥333.95 billion ($2.32 billion), up 759.5% and 46.5% from the year-ago value, respectively. Also, its operating income improved 126.9% year-over-year to ¥208.15 billion ($1.45 billion).

The consensus EPS estimate of $1.58 for the fiscal period ending March 2024 reflects an 87.2% year-over-year improvement. The consensus revenue estimate of $90.29 billion for the same period indicates a 302% rise year-over-year. Moreover, the company topped its revenue estimates in each of the trailing four quarters, which is impressive.

NSANY’s shares have gained 25.5% year-to-date to close the last trading session at $7.88.

NSANY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.

It has an A grade for Growth and Value and a B for Stability. Within the 51-stock Auto & Vehicle Manufacturers industry, it is ranked #16. Click here to see the other ratings of NSANY for Momentum, Sentiment, and Quality.

Stock to Watch:

LCI Industries (LCII)

LCII manufactures and supplies components for the manufacturers of Recreational Vehicles (RVs) and adjacent industries in the United States and internationally. It operates in two segments: Original Equipment Manufacturers (OEM) and Aftermarket.

On December 15, LCII paid a quarterly dividend of $1.05 per share. The company’s annual dividend of $4.20 translates to a 3.31% yield on the prevailing prices, while its four-year average dividend yield is 4.20%.

LCII’s trailing-12-month gross profit margin of 19.84% is 44.1% lower than the 35.47% industry average. Whereas, its trailing-12-month asset turnover ratio of 1.22x is 22.7% higher than the industry average of 0.99x.

For the fiscal third quarter, which ended on September 30, 2023, LCII net sales amounted to $959.32 million. Its gross profit declined 16.6% from the year-ago value to $210.95 million.

The company’s net income and EPS declined 57.8% and 57.5% from the prior-year quarter to $25.89 million and $1.02, respectively. However, during the same period, its total current liabilities stood at $414.02 million, down 1.7% compared to $421.30 million as of December 31, 2022.

Analysts predict LCII’s revenue for the fourth quarter (ending December 2023) to decline 5.4% year-over-year to $846.25 million, while its EPS for the same period is expected to be $0.42. Moreover, the company’s EPS is projected to improve by 20% per annum over the next five years.

The company’s shares have gained 11.3% over the past month to close the last trading session at $126.83.

LCII’s POWR Ratings are consistent with this uncertain outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system.

It is ranked #29 out of 51 stocks in the Auto & Vehicle Manufacturers industry. It has a C grade for Value and Momentum. Click here to see LCII’s ratings for Growth, Stability, Sentiment, and Quality.

What To Do Next?

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AZO shares were trading at $2,611.67 per share on Thursday afternoon, up $4.33 (+0.17%). Year-to-date, AZO has gained 5.90%, versus a 24.74% rise in the benchmark S&P 500 index during the same period.

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