Melvin Capital Bets On AutoZone With Sizable New Investment

Gabriel Plotkin’s Melvin Capital poured money into leading auto parts retailer AutoZone (AZO) during the first quarter, a 13F filing reveals. The $7 billion fund snapped up 222,204 AZO shares.

Encouragingly, AutoZone boasts a firmly bullish Strong Buy Street consensus, with 11 recent buy ratings vs 3 hold ratings. However the average analyst price target of $1,116 only indicates upside potential of 4%, despite a 10% drop year-to-date. (See AZO stock analysis on TipRanks).

“While stores remain open and the company has significant financial flexibility, we would expect material weakness and uncertainty to persist for at least the next several months, particularly for the more economically sensitive DIY customer (~80% of sales)” comments RBC Capital analyst Scot Ciccarelli.

Although Ciccarelli is staying sidelined on the stock for now, he notes that the company’s $2B credit availability and buyback suspension, along with (a slightly softer) cash flow should allow AutoZone to remain in a strong financial position to weather the COVID-19 storm.

Also during the quarter, Melvin Capital initiated a new position in Bed Bath & Beyond (BBBY), with the purchase of 1.37 million shares.

However the fund said goodbye to cable television provider Altice USA (ATUS), with the sale of 10.8 million ATUS shares, while also slashing its Amazon holding (AMZN) by 234,000 shares to 474,000 shares.

The fund previously hit the headlines after disclosing a 5.2% stake in Chinese coffee chain Luckin’ Coffee (LK) on March 25, up from its previous 3.51% stake in 2019.

In April, Luckin’ Coffee revealed that, beginning in the second quarter of 2019, Mr. Jian Liu, the COO and a director of the company, and several employees reporting to him, had fabricated certain transactions. The stock has now plunged 88% year-to-date.

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