CFRA Downgrades AutoZone, Expects Slowing Sales Growth Ahead

AutoZone, Inc. AZO shares traded higher by 1.4% on Monday, but one analyst said the stock had gotten a bit overheated ahead of its third-quarter earnings report.

The Analyst: CFRA analyst Garrett Nelson downgraded AutoZone from Buy to Neutral and raised his price target from $1,800 to $1,925.

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The Thesis: In the downgrade note, Nelson mentioned AutoZones recent run. In the past three months, the stock has gained 19% compared to just a 4.8% gain for the S&P 500. AutoZone shares are now trading at a PE of 17, a slight premium to their 10-year average forward PE of 16.2.

Nelson raised his fiscal 2022 and 2023 EPS estimates from $97.65 and $111.90 to $99.25 and $113.35, respectively. However, he moved to the sidelines on the stock based on its full valuation and more difficult comps in the quarters ahead.

In its last fiscal year, AutoZone reported 13.6% same-store sales growth, but that growth slowed to just 4.3% last quarter. Nelson said the company is also losing key growth tailwinds, including favorable pandemic trends and stimulus payments.

Finally, Nelson said the stock’s big 2021 run means its buyback program will not be as EPS accretive as it seemed like it would be at the beginning of the year.

He is expecting more impressive numbers from AutoZone in the coming quarters but said near-term upside in the stock may be limited given its full valuation.

“AZO is expected to report earnings in early December and while the company has an impeccable earnings track record (14 straight EPS beats), same-store sales growth is expected to decelerate to only 3.9% (and even more so in future quarters),” Nelson said.

Benzinga’s Take: This type of downgrade is a best-case scenario downgrade for investors. Nelson seemingly has nothing bad to say about AutoZone’s business or outlook, he just likely sees better opportunities elsewhere for the time being following the stock’s 2021 outperformance.

Photo: Thomas via Flickr