Eddie Lampert has stepped up his selling of long-time holding AutoZone.
For the second time in a week, the founder of hedge fund ESL Partners disclosed in a regulatory filing he has cut his stake in the replacement auto parts retailer, unloading a total of one million shares for between $324 a share and $331 per share.
All told, he has reported sales of more than 3.6 million shares in seven separate filings this year alone, bringing his stake down to 11.13 million shares, or 27.8 percent of the total outstanding.
Just two years ago he owned more than 40 percent of the company.
Lampert is certainly lightening his AutoZone load on a high note. The company’s shares, at around $325, are up 20 percent or so this year after surging 42 percent in 2010.
It is not clear why Lampert has been aggressively selling his stock. And a spokesman had no comment.
Part of ESL’s sales can be tied to AutoZone’s ongoing share repurchase policy dating back to 1998. In September, its board authorized another $750 million in share buybacks. In a note to clients at the time, Citi Investment Management & Research pointed out this is the company’s largest share repurchase authorization. Since 2007, it has typically authorized $500 million stock repurchases. “There remains significant potential for further share repurchases given the company’s considerable cash generation capabilities and its willingness to use debt to repurchase shares,” Citi told clients.
Even so, ESL did reduce its overall stake, meaning it sold more on a proportionate basis than AutoZone reduced its share count.
Analysts who follow AutoZone say they have no idea how Lampert feels about the stock. However, they are still bullish themselves.
In August, for example, Oppenheimer upped its rating to Outperform.
For its part, Citi has a $377 price target, suggesting a 15 percent gain from current prices, calling the company a “well positioned and best-in class operator” that offers significant potential for return of shareholder value through repurchases.”
“I think the stock has a lot of upside,” says Kate McShane, the analyst who follows AutoZone for Citi. “They just started investing in the commercial business, a growing category for the after-market.”
In fact, she thinks the stock is ripe for a financial buyer such as a private equity fund, since it is a great cash generator.
On the other hand, it has good profit margins, which is actually a deterrent to a PE firm since it likes underperforming companies with great potential. Another negative for financial buyers—AutoZone has a lot of debt, used in large part to finance the buybacks.
There is even more interest in Lampert’s moves than in those of other hedge fund managers, as Lampert, who BusinessWeek several years ago called the next Warren Buffett, is known for holding just a handful of stocks.
He is best known for his majority position and control of Sears Holdings, the once-venerable but now struggling retail giant that is the result of the merger of Sears Roebuck and Kmart.
But for years Lampert has also owned sizable stakes in AutoZone as well as AutoNation, a huge car dealership chain.
The three stocks alone accounted for about 85 percent of ESL’s total U.S. equity assets at the end of June.
AutoNation, for its part, is up 33 percent this year after surging 47 percent last year.
And, for all its problems unsuccessfully clicking with customers and a chronic decline in same-store sales, shares of Sears this year are essentially flat, trading in the mid-$70s.
So even though Sears Holdings lost 12 percent last year, Lampert’s 22 year-old hedge fund, ESL Partners, finished 2010 up 18.3 percent net of fees, according to an investor at the time.
Given the performance of its three largest positions that comprise the bulk of assets, it is likely that ESL is up by double-digits this year as well.
