AutoZone Stock Down, But Sell-Side Says Engine Running Just Fine

AutoZone, Inc. AZO shares fell after hours Tuesday after the retailer reported an adjusted EPS and sales miss in the fourth quarter. 

Sell-side analysts on Wednesday shrugged off the margin and administrative cost concerns that seemed to spook investors, saying the company is set for continued earnings growth.

The Analysts

Wedbush analyst Seth Basham maintained an Outperform rating on AutoZone with a price target of $1,240.

Morgan Stanley’s Simeon Gutman maintained an Equal-weight rating on the stock and raised the target price from $1,050 to $1,100.

Stephens analyst Daniel Imbro maintained an Overweight rating and $1,230 target price.

The Takeaways 

The concerns over gross margin and administrative expenses that appeared to cause the stock sell-off Tuesday are likely “overdone,” Wedbush’s Basham said in a Wednesday note. 

Solid commercial growth and ongoing, positive Do-It-Yourself comps should lead to mid-single digit sales and EBIT growth, the analyst said. 

“Combined with share repurchases, AZO is a relatively consistent + (high single digit) EPS growth story that deserves a premium valuation multiple, in our view.” 

Morgan Stanley’s Gutman did caution about elevated expenses in the near-term, but sees a steady-as-it-goes picture with a risk vs. reward calculation that seems balanced.

“AZO is a steady business with a proven track record in a defensive segment,” the analyst said in a Wednesday note. 

Do It For Me Does It For Analysts

Gutman said investments in the “Do It For Me” sector are paying off and led to a fourth straight quarter of double-digit growth in that business.

The commercial sales growth remains strong despite cooler and wet weather that often keeps people from working on their cars, which was a good sign for Stephens’ Imbro, who also took encouragement from accelerating sales through the end of the quarter.

“AZO has additional commercial initiatives that should augment same store sales into FY20, and we believe the company will continue taking market share in both the DIY and DIFM markets,” the analyst said in a Wednesday note.

Price Action

AutoZone shares were down 1% at $1,085.71 at the time of publication Wednesday. 

Related Links:

AutoZone's Solid Q3 Results, Strong Hub Strategy Keep UBS Bullish

Sell-Side Raise AutoZone Price Targets Following Big Earnings Beat

Photo by Steve Morgan via Wikimedia.