On Wednesday, AutoZone (NYSE:AZO) maintained its Outperform rating from an analyst at William Blair despite the company's shares falling 3% in premarket trading due to weaker-than-expected fourth-quarter results. The analyst highlighted concerns over the current softening demand backdrop and potential lack of pricing power as headwinds for the first half of fiscal 2025. The industry is adjusting from the high inflation seen in the previous years of 2021 and 2022.
Investor worries may be somewhat alleviated by the noted acceleration in commercial sales, which had been anticipated following management's positive commentary on demand improvement over the last quarter. Although AutoZone does not issue financial guidance, there is an expectation for the management to shed light on September trends, pricing outlook, and potential recovery triggers in discretionary categories during Tuesday's call.
The analyst has chosen to maintain current estimates until more information is provided by the company's management. AutoZone's shares are currently trading at 18.3 times the analyst's fiscal 2025 earnings per share (EPS) estimate of $166.80. This valuation is higher than the five-year average of 16.3 times but remains below that of its peer O'Reilly (NASDAQ:ORLY), which trades in the mid-20s range.
The report suggests that AutoZone's stock has the potential for multiple expansion to align with its peer if the acceleration in 'do it for me' (DIFM) comps continues, possibly reducing investor concerns about demand volatility. Additional factors that could provide a lift to AutoZone's shares include earnings growth from the development of international markets, supply chain optimization efforts, and further share repurchases.
In other recent news, AutoZone's earnings and revenue have been a focal point for investors. The company reported an 11% increase in earnings per share and a 9% rise in revenue, reaching $6.21 billion, despite falling short of expectations.
Analyst firms have responded with various adjustments to their ratings and price targets. Mizuho maintained an Outperform rating on AutoZone, projecting a mid-single-digit percentage growth rate for the company's commercial sales throughout the 2025 fiscal year. DA Davidson and CFRA also maintained their Neutral and Buy ratings respectively, while Citi reduced its target to $3,500 but maintained a Buy rating.
Morgan Stanley raised its price target for AutoZone from $3,038 to $3,125, maintaining an Overweight rating. The company's commercial trends have shown improvement, accelerating beyond the previous quarter's pace. However, AutoZone is currently under investigation by U.S. lawmakers for potential tariff evasion related to purchases from a Chinese company, Qingdao Sunsong.
The company's resilience in the face of these shortfalls and the broader market context contributes to these ratings. AutoZone has also announced plans to expedite the construction of more than 20 megahub locations in the coming year, which is expected to enhance delivery speed and parts availability. These are some of the recent developments in AutoZone's market position and financial performance.
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