On Friday, Evercore ISI adjusted its price target for AutoZone (NYSE:AZO) shares, listed on the NYSE under the ticker NYSE:AZO, to $3,350 from the previous target of $3,900. The firm maintained its Outperform rating on the stock. The adjustment comes ahead of AutoZone's fiscal fourth-quarter earnings report, which is scheduled for release next Tuesday, September 24.
AutoZone's performance has been robust this year, with the stock price increasing by 19%, outpacing the S&P Retail ETF (XRT), which rose by 6%, and the broader S&P 500's 18% gain. The upcoming earnings for the fourth fiscal quarter are expected to be more resilient than some might fear. The company has experienced some volatility in its top-line revenue, particularly within the do-it-yourself (DIY) segment, which has seen recent softness. This trend is reflected in the performance of dollar stores and competitors like Advance Auto Parts (NYSE:AAP).
The analysis anticipates that the do-it-for-me (DIFM) service segment could see a growth of 3-4%. Looking forward, expectations are set for DIFM acceleration around the year 2025, as weather patterns normalize, Supplemental Nutrition Assistance Program (SNAP) transfer payments stabilize, and disinflation is likely to turn higher. AutoZone's strategic initiatives, such as rolling out mega hubs and enhancing delivery speeds by positioning inventory closer to consumers, are seen as key growth drivers.
Competitors such as Advance Auto Parts, independent operators, and to a lesser extent Genuine Parts Company (NYSE:GPC) (NAPA), are identified as potential sources from which AutoZone could gain market share. Historically, AutoZone has demonstrated consistent growth, with low to mid-single digit comparable store sales, mid-single digit or higher revenue growth, and high single digit EBITDA growth. This is complemented by a mid-single digit share buyback yield.
Evercore ISI's base case valuation of $3,350 for AutoZone applies a price-to-earnings (P/E) ratio of 19.5 times the projected calendar year 2026 earnings per share (EPS), reflecting the company's defensive growth characteristics and pricing power. These factors contribute to AutoZone's position as a top pick for the "Fab Five Portfolio," indicating a forecast for the stock to continue outperforming in the future.
In other recent news, AutoZone has remained a strong contender in the market with TD Cowen maintaining a Buy rating on the company's stock. The firm's analysis suggests a modest increase in AutoZone's fourth-quarter domestic comparable sales, primarily driven by the Do-It-For-Me services. Analysts anticipate further growth in the fiscal year 2025, as AutoZone continues to open more Megahub locations and enhances service speed to garages.
In addition to TD Cowen's positive outlook, Barclays maintained an overweight rating on AutoZone while subtly adjusting its earnings estimates, citing potential challenges in meeting fiscal year 2025 expectations due to slow industry demand and other factors. AutoZone also made a strategic move by appointing Kenneth Jaycox as Senior Vice President, Commercial, Customer Satisfaction, aiming to bolster customer satisfaction and commercial sales performance.
Despite recent developments, AutoZone is under investigation by U.S. lawmakers for potential tariff evasion, with a focus on purchases from Chinese company Qingdao Sunsong. Analyst firms such as Evercore ISI, BofA Securities, JPMorgan, and Truist Securities have made various adjustments to their price targets for AutoZone, citing different concerns but expressing continued confidence in the company's profitability and potential for future sales growth. These are recent developments in AutoZone's market position and financial performance.
InvestingPro Insights
As AutoZone gears up for its fiscal fourth-quarter earnings report, real-time data from InvestingPro provides a snapshot of the company's financial health and market performance. AutoZone's market capitalization stands at a robust $51.93 billion, with a P/E ratio of 20.39, slightly adjusting downwards in the last twelve months as of Q3 2024 to 19.78. The company's revenue growth has been steady, with a 5.03% increase over the last twelve months, indicating consistent business expansion. This is further exemplified by a solid gross profit margin of 53.18%, showcasing AutoZone's efficiency in maintaining profitability.
InvestingPro Tips suggest that management's aggressive share buybacks could be a sign of confidence in the company's value, while the stock's low price volatility may appeal to investors seeking stability. However, the high P/E ratio relative to near-term earnings growth warrants attention, suggesting that investors may expect significant future earnings to justify the current valuation. It's important to note that AutoZone does not pay dividends, which might influence the investment strategy for income-focused portfolios.
For those seeking more in-depth analysis, InvestingPro offers additional tips on AutoZone's financials and market performance. As the company continues to execute strategic initiatives and potentially gain market share, these insights could prove valuable for investors making informed decisions.
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