AutoZone (NYSE:) on Wednesday maintained its Outperform rating from a William Blair analyst despite the company’s stock falling 3% in premarket trading on weaker-than-expected fourth-quarter results. The analyst highlighted concerns about the current weakening demand environment and potential lack of pricing power as headwinds for the first half of fiscal 2025. The industry is adjusting to the high inflation seen in the previous years of 2021 and 2022.
Investors’ concerns may be somewhat alleviated by the notable acceleration in commercial sales, which had been anticipated following management’s positive commentary on improving demand during the fourth quarter. While AutoZone does not issue financial guidance, management is expected to shed light on September trends, pricing outlook and potential triggers for recovery in discretionary categories during Tuesday’s conference call.
The analyst has chosen to maintain current estimates until the company’s management provides more information. AutoZone 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 still lower than peer O’Reilly (NASDAQ:), which trades in the mid-25s.
The report suggests that AutoZone stock has multiple expansion potential to align with its peers if the acceleration of do-it-for-me (DIFM) comparisons continues, which would possibly reduce investor concerns about demand volatility. Other factors that could boost AutoZone stock include earnings growth from the development of international markets, supply chain optimization efforts, and more share repurchases.
In other recent news, AutoZone’s earnings and revenue have been a focus for investors. The company reported an 11% increase in earnings per share and a 9% increase in revenue, reaching $6.21 billion, despite missing 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 through fiscal 2025. DA Davidson and CFRA also maintained their Neutral and Buy ratings respectively, while Citi lowered its target to $3,500 but maintained a Buy rating.
Morgan Stanley raised its price target for AutoZone from $3,038 to $3,125, while maintaining an Overweight rating. The company’s business trends have shown improvement, accelerating beyond the prior quarter’s pace. However, AutoZone is currently under investigation by U.S. lawmakers for possible tariff evasion related to purchases from a Chinese company, Qingdao Sunsong.
The company’s resilience in the face of these shortcomings and the broader market context contribute to these ratings. AutoZone has also announced plans to accelerate the construction of more than 20 mega centers in the next year, which is expected to improve delivery speed and parts availability. These are some of the recent developments in AutoZone’s market position and financial performance.
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