On Wednesday, Evercore ISI adjusted its outlook on AutoZone shares (NYSE: NYSE:AZO) shares, decreasing the price target to $3,250 from the previous $3,300, while maintaining an Outperform rating.
The firm cited several challenges facing the company, including weather-related cycles, a lackluster consumer environment, and disinflationary pressures.
These factors have led to a flat domestic comparable sales performance, SG&A deleverage, and tightening payable to inventory and return on invested capital (ROIC) ratios.
Despite these headwinds, AutoZone continues to gain market share and invest in initiatives aimed at improving customer service and parts availability, such as expanding mega hubs and investing in technology and labor.
The company reported a 3.5% growth in sales, a 5% increase in earnings before interest and taxes (EBIT), and a 7.5% rise in earnings per share (EPS).
Evercore ISI has revised its fiscal 2024 EPS estimate for AutoZone downward by 1%, even after a stronger-than-expected fiscal third-quarter performance.
This adjustment is due to the anticipation of weaker comparable sales in the fiscal fourth quarter. The new price target of $3,250 is based on a 19 times multiple on the firm's projected calendar year 2025 EPS.
The firm also noted that it is removing its negative Tactical Asset Allocation Program (TAP) call as the anticipated earnings catalyst has now been realized, with AutoZone's stock having declined by 700 basis points compared to the market and retail sector.
Despite the recent sluggish comparable sales, Evercore ISI highlights AutoZone's position as a quality defensive growth stock, underpinned by a strong balance sheet with a debt to EBITDAR ratio of 2.5 times and free cash flow of approximately $2.5 billion, which supports a buyback program exceeding $3 billion.
InvestingPro Insights
AutoZone (NYSE: AZO) has been navigating a complex market landscape, as noted by Evercore ISI's revised outlook. To add further context, InvestingPro data shows a market capitalization of $48.81 billion and a P/E ratio of 22.34, indicating that while the company has a significant market presence, it is trading at a higher price relative to its earnings. Additionally, the company's revenue growth over the last twelve months stands at 5.57%, reflecting a steady increase in sales.
From the InvestingPro insights, two key tips emerge: First, management's aggressive share buybacks could signal confidence in the company's value, aligning with AutoZone's robust buyback program. Secondly, the stock's low price volatility suggests stability, which might appeal to investors looking for defensive growth stocks in a volatile market.
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