Roth/MKM resumed coverage on AutoZone (NYSE: NYSE:AZO), issuing a Buy rating and setting a price target of $3,634.00. The firm highlighted AutoZone's position as a leader in the auto parts retail industry and noted its resilience during economic downturns. With the addition of a growing Do-It-For-Me (DIFM)/professional service segment, Roth/MKM expects the company to sustain sales and earnings growth through the fiscal years 2023 to 2026.
The analysis predicts a sales growth with same-store sales (SSS) in the range of 3%-4% on a constant currency basis and an earnings growth of 11% from the fiscal year 2023 to the fiscal year 2026. These growth expectations are factored into the 12-month price target, which is based on a multiple of 20 times the firm's forecasted fiscal year 2026 earnings per share (EPS).
AutoZone's strategy to expand its professional service offerings is seen as a significant contributor to the company's projected growth. This sector, known as DIFM, is rapidly growing and is expected to complement the already robust retail operations of the company. The analyst's positive outlook is rooted in AutoZone's historical performance and its potential to continue thriving in the competitive auto parts market.
The price target of $3,634.00 represents Roth/MKM's confidence in AutoZone's ability to maintain its growth trajectory. The valuation is derived from a 20 times multiple applied to the anticipated earnings per share in fiscal year 2026, which corresponds to approximately 14 to 15 times the expected fiscal year 2026 earnings before interest, taxes, depreciation, and amortization (EBITDA).
Roth/MKM's resumption of coverage on AutoZone with a Buy rating and a high price target is a strong signal to the market regarding the firm's expectations for the company's financial performance over the next few years. The analysis provides investors with a detailed look at the potential for sustained growth in the auto parts retail sector, particularly for a leading company such as AutoZone.
AutoZone has been a topic of discussion among investment firms. Goldman Sachs recently downgraded AutoZone from Neutral to Sell, citing concerns over the lower-income consumer segment and potential decline in car repairs. The firm also noted possible financial risks such as higher interest expenses and a reduction in share repurchases.
AutoZone has reported solid financial performance in its fiscal year 2024, with a 5.9% increase in total sales and a 13% rise in earnings per share. The fourth quarter also saw a 9% increase in total sales and an 11% increase in earnings per share, despite a 500-basis-point currency headwind. The company has invested over $1 billion in capital expenditures to enhance infrastructure and customer service.
The company has also revealed plans to accelerate store openings internationally, particularly in the commercial sector, despite expected currency fluctuations impacting revenues in the fiscal year 2025.
InvestingPro Insights
To complement Roth/MKM's bullish outlook on AutoZone (NYSE: AZO), recent data from InvestingPro offers additional context for investors. AutoZone's market capitalization stands at $53.37 billion, reflecting its significant presence in the auto parts retail industry. The company's P/E ratio of 20.13 aligns closely with the multiple used in Roth/MKM's valuation model, suggesting that the market's current pricing is in line with analyst expectations.
InvestingPro Tips highlight AutoZone's strong financial performance, noting that the company has been profitable over the last twelve months and has delivered high returns over the last decade. This track record of profitability supports Roth/MKM's projection of continued earnings growth. Additionally, AutoZone's management has been aggressively buying back shares, which can potentially boost earnings per share and align with the analyst's EPS growth forecasts.
It's worth noting that AutoZone operates with a moderate level of debt and does not pay a dividend, instead focusing on share repurchases and reinvestment in the business. This strategy appears to be supporting the company's growth initiatives, including the expansion of its DIFM segment as mentioned in the analyst report.
For investors seeking a deeper dive into AutoZone's financials and growth prospects, InvestingPro offers 11 additional tips, providing a comprehensive view of the company's position in the market.
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