On Wednesday, Citi maintained a Buy rating on AutoZone (NYSE:AZO), increasing the price target to $3,900 from $3,500.
The adjustment comes after the company's first-quarter performance, where the Do-It-For-Me (DIFM) segment grew but fell short of expectations, while the Do-It-Yourself (DIY) side showed signs of improvement.
AutoZone also experienced continued merchandise margin strength and slightly exceeded earnings before interest and taxes (EBIT) expectations.
The report acknowledges the challenges faced by investors in the DIFM sector, noting that growth acceleration has tested their patience.
"In our view, AZO still represents one of the more attractively valued, high-quality businesses in retail right now," said the analysts.
Citi indicates that AutoZone has a strategic plan to drive improvement in this area. The firm also anticipates that the industry will benefit from the improving financial health of low-income consumers and rising parts inflation.
While trading at a premium compared to its historical averages, AutoZone's valuation is significantly lower than that of its larger competitor, O'Reilly Automotive (NASDAQ:ORLY), and below the average of a basket of high-quality retail market share leaders.
The price target increase to $3,900 is based on approximately 23 times the forecasted fiscal year 2026 earnings per share (EPS), reflecting the higher valuation multiples of AutoZone's peer group. The reiteration of the Buy rating comes after adjustments to estimates following the first-quarter EPS results and the impact of weaker foreign exchange rates.
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