On Wednesday, Morgan Stanley (NYSE:MS) adjusted its price target for AutoZone (NYSE:AZO) shares, listed on NYSE: AZO, setting it at $3,038.00, a slight decrease from the previous $3,100.00. Despite the reduction, the firm reaffirmed its Overweight rating on the automotive parts retailer's stock.
The new price target is based on an approximate 18x price-to-earnings (P/E) multiple against a revised calendar year 2025 earnings per share (EPS) estimate of approximately $168.10.
The financial institution's analysis anticipates modest domestic comparable store sales growth of about 1.2% in fiscal year 2024. This is expected to be accompanied by a gross margin expansion of around 130 basis points and a slight increase in selling, general and administrative (SG&A) expenses due to new store openings and an extra week in the fiscal calendar.
These factors, along with projected share buybacks of approximately $5.2 billion, are forecasted to yield an EPS of roughly $153.45 for fiscal year 2024, which would represent a year-over-year increase of about 16%.
Looking further ahead, Morgan Stanley projects a 2.7% rise in comparable store sales for fiscal year 2025. However, the firm also foresees a slight contraction in gross margin by approximately 10 basis points as the do-it-for-me (DIFM) segment picks up pace and last-in-first-out (LIFO) accounting credits are exhausted.
SG&A expenses are also expected to increase slightly by around 10 basis points. Despite these pressures, the anticipated $2.5 billion in share buybacks is expected to contribute to an EPS of approximately $163.10 for fiscal year 2025.
The target P/E multiple of 18x for AutoZone is consistent with the company's current trading levels. This valuation also implies a market multiple of approximately 0.9x that of the S&P 500, which aligns with AutoZone's historical average relative to the market.
InvestingPro Insights
AutoZone's (NYSE: AZO) strategic maneuvers and market performance can be further illuminated by insights from InvestingPro. Reflecting on the company's financial health and stock behavior, two InvestingPro Tips stand out. Firstly, AutoZone's management has demonstrated confidence in the company's value through aggressive share buybacks, which can be a positive signal to investors about the company's future prospects. Secondly, despite the stock being in oversold territory according to the Relative Strength Index (RSI), which might suggest a potential rebound opportunity, analysts have expressed caution by revising earnings estimates downwards for the upcoming period.
From a data perspective, AutoZone's market capitalization stands robust at $48.81 billion. The stock trades at a P/E ratio of 22.34, which is high relative to near-term earnings growth, and the adjusted P/E ratio for the last twelve months as of Q2 2024 is 18.62. This aligns with Morgan Stanley's target P/E multiple, reinforcing the relevance of the valuation. Revenue growth remains positive, with a 5.57% increase over the last twelve months as of Q2 2024, indicating a steady business expansion.
Investors looking to delve deeper into AutoZone's financials and stock performance can uncover additional insights with a subscription to InvestingPro. There are 11 more InvestingPro Tips available, offering a comprehensive analysis of AutoZone's financial health and market standing. For those interested, use the coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription.
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