A Compelling Entry Point Drives UBS To Upgrade AutoZone

UBS’ Michael Lasser believes that the 9.5 percent decline in AutoZone, Inc. AZO shares had created a compelling buying opportunity.

Lasser upgraded the rating on the company from Neutral to Buy, with a price target of $825.

Selloff Overdone

The analyst believes the recent selloff was likely to have been due to fears regarding auto parts demand, spending of the low-income segment and the risks of online players.

Related Link: Aging Car Population Keeping AutoZone Fundamentals Strong

“We think these uncertainties are over-stated & AZO will generate accelerating SSS growth in the coming periods wither due to the onset of cold weather or its initiatives gaining traction,” Lasser mentioned.

The analyst expects this to help sustain AutoZone’s long-term track record of EPS growth in the double digits.

Manageable Risk

Supported by Jefferies’ in-depth survey work, Lasser stated that while the online risk appears manageable at a high level, “the immediacy of the need & service assisted nature of the transaction means that customer behavior will evolve slowly, if at all.”

Even if price transparency, due to e-commerce, were to increase the number requests for price matches, AutoZone would be more protected than its peers, given that 50 percent of the company’s sales are of its private label products.

In addition, Lasser pointed out that AutoZone had “an under-appreciated opportunity and flexibility in its model,” and that the share price decline made buyback more accretive.

Full ratings data available on Benzinga Pro.