BofA Securities analyst Robert F. Ohmes upgraded AutoZone, Inc. AZO from Neutral to Buy, raising the price forecast from $3900 to $4800.
The analyst writes that the upgrade stems from growing confidence in AutoZone's ability to perform well during economic downturns, continued market share gains across both DIY and professional customer segments, and the "potential inflation benefit" from price increases.
Ohmes also cited improving dynamics in the used versus new car market, ongoing momentum in the Pro business supported by maturing commercial programs, and the expansion of hubs and mega hubs.
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The analyst's upgrade reflects a shift to a 27x FY2026E EPS multiple from the previous 22x. AutoZone is scheduled to release its third-quarter results on Tuesday, May 27.
Ohmes projects EPS of $38.15 and domestic comparable sales growth of 2.0%, compared to consensus estimates of $36.80 EPS and 2.4% comp growth.
The analyst sees solid top-line performance, supported by Bloomberg Second Measure data showing a notable sequential improvement.
According to Ohmes, weekly sales trends also showed momentum, particularly in March, with high-single-digit gains likely driven by the favorable timing of tax refunds.
For Q3, the analyst models a 19 basis point decline in gross margin as the company laps a $24 million LIFO benefit recorded in the same quarter last year.
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Ohmes sees room for 2%-4% industry inflation to return, driven by auto parts retailers increasing prices to counter added tariff pressure; about 35% of AutoZone's COGS come from China.
AutoZone is strategically well-positioned to navigate the current tariff environment compared to its retail counterparts, Ohmes noted. He highlighted that only approximately one-third of AutoZone's product offerings are sourced from China, significantly reducing its direct exposure to increased import duties.
The analyst further elaborated that auto parts retailers are likely to pass on incremental price increases to consumers successfully. This expectation is underpinned by shifting consumer behavior. As auto tariffs could lead to an average increase of $3,285 for U.S.-assembled vehicles and potentially higher for imported models, consumers are expected to be more inclined to repair their existing vehicles rather than purchase new ones. This trend suggests consumers will be more willing to absorb the extra cost of fixing their current vehicles.
Ultimately, the analyst believes that consumers will hold onto their existing vehicles for longer durations, driving an increased demand for quality parts in auto repairs. This dynamic positions AutoZone favorably within the current economic landscape marked by rising new vehicle costs.
The analyst anticipates several tailwinds for AutoZone in the coming quarters. These include ongoing market share gains, the potential for inflation-driven price increases, a more favorable dynamic between used and new car sales, and a continued boost from its Pro segment.
Price Action: AZO shares are trading lower by 0.53% to $3,859.76 at last check Wednesday.
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