Update: Goldman Raising Price Target On AutoZone (AZO)

Goldman Sachs is out with a research report on AutoZone Inc. AZO and is raising its price target to $262 from $258, but is keeping its Sell rating. In a note to clients, Goldman writes, "AZO posted 2QFY11 results which were legitimately better than expected, marked by new market share gains and superior gross margin rate flow-through. The quality of earnings was high, as discretionary expenses weighed on EPS. EPS of $3.34 compares favorably to 2QFY10's $2.46, our $3.08, and consensus of $3.06. SSS were stronger, +7.1% vs. our +5.5%." Goldman goes on to say, "We expect the stock to mark time, and maintain our Sell rating relative to our broader coverage group given substantially stiffer compares for the May quarter, fading macro tailwinds (improving new car sales) and emerging macro headwinds (higher gas and food prices), as well as current peak margins and full valuation. Within this context, we are incrementally watchful for AZO's company-specific drivers, as better gross margin rate visibility, coupled with improved commercial momentum and conservative expense management in recent quarters, help to drive AZO's earnings visibility. We raise 3QFY11 EPS to $4.93 from $4.61, FY2011 to $18.95 from $18.20, and FY2012 to $21.15 from $20.35 on the flow through of the stronger gross margin rate and higher sales." Shares of AZO gained $5.57 yesterday to close at $263.52, a gain of 2.16%.