On Wednesday, Wolfe Research adjusted its price target for AutoZone (NYSE:AZO), a leading retailer and distributor of automotive replacement parts and accessories, reducing it to $3,000 from the previous $3,150. The firm, however, has maintained an Outperform rating on the stock.
The adjustment comes amid a positive outlook for the auto parts industry, which is expected to grow due to the ongoing tight supply and high prices for new and used vehicles. This market condition is anticipated to lead to an older average age for vehicles in the United States.
Wolfe Research also sees potential for AutoZone to increase its market share in the commercial sector, where it currently holds a 5% share compared to Genuine Parts Company's (NYSE:GPC) 10% share in the Do-It-For-Me (DIFM) segment and AutoZone's own 15% share in the Do-It-Yourself (DIY) segment. There is also an opportunity for expansion in international markets.
The firm believes that AutoZone's valuation gap with O'Reilly Automotive (NASDAQ:ORLY) could narrow over time due to an expected higher growth rate compared to historical figures. Despite the price target reduction, Wolfe Research's outlook remains positive, based on these growth prospects.
AutoZone's shares experienced a downturn of 3.5% for the day, but the stock's year-to-date performance remains in the positive territory at +9.1%, outperforming the S&P 500's +11.6%. The shares are currently trading at around 17.5 times next twelve months (NTM) earnings, slightly above the five-year average of 17 times, and within the five-year range of 10 to 20 times. For comparison, O'Reilly Automotive trades at 23 times NTM earnings.
Wolfe Research has also revised its earnings per share (EPS) estimates for AutoZone downward by 4% across the board for fiscal years 2024, 2025, and 2026. The new EPS estimates stand at $150.68, $160.54, and $179.16, respectively. These figures are below the prior consensus, and the firm anticipates that consensus estimates may be adjusted slightly lower.
The updated price target of $3,000 is based on an 18 times NTM earnings multiple, which is marginally above the historical average.
InvestingPro Insights
AutoZone's strategic maneuvers and market performance are under the microscope as Wolfe Research revises its price target. To further understand the company's standing, let's consider some key InvestingPro Data. AutoZone boasts a robust market capitalization of $48.81 billion, reflecting its significant presence in the automotive parts industry. Its P/E ratio stands at 22.34, suggesting a premium valuation compared to the market, which aligns with Wolfe Research's observation of the stock trading above its five-year average. Moreover, the company has demonstrated a solid revenue growth of 5.57% over the last twelve months as of Q2 2024, underpinning the positive outlook on the industry's growth potential.
Delving into InvestingPro Tips, it's noteworthy that AutoZone's management has been actively repurchasing shares, signaling confidence in the company's future prospects. Additionally, the stock's RSI indicates it is in oversold territory, which may attract investors seeking potential bargains. However, it's crucial to be aware that six analysts have revised their earnings estimates downwards for the upcoming period, which could impact future performance. For investors seeking more comprehensive analysis, there are 11 additional InvestingPro Tips available, which can be accessed by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
These insights serve to enrich the context around AutoZone's current valuation and market dynamics, offering readers a deeper understanding of the factors at play as they contemplate the stock's potential.
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