AutoZone's Solid Q1 Beat & Industry Fundamentals Trigger 4% Price Target Boost By This Analyst

  • Raymond James analyst Bobby Griffin reiterated an Outperform rating on the shares of AutoZone AZO and raised the price target from $2,500 to $2,600.
  • The analyst said AutoZone's first-quarter FY23 EPS was solidly above expectations.
  • On a one-year and three-year stack basis, AZO's comps were impressive across the entire 12-week quarter, increasing mid-single digits and 31.5%, respectively, for each of the four-week periods.
  • Gross margin rate decreased 240 basis points y/y to 50.1% in 1Q23, which was ~20 basis points above the consensus view. 
  • The analyst expects DIFM growing as a percentage of sales to be the primary driver of gross margin headwind moving forward.
  • However, the rate of increase in the DIFM business should start to slow some as comparisons become tougher, abating some margin pressure, the analyst added.
  • LIFO was an $81 million headwind in 1Q23, and this pressure is expected to slow to a roughly $40 million headwind in 2Q23.
  • The analyst believes this pressure (albeit non-cash) should abate further in 2H23, given certain freight costs have been easing of late.
  • The analyst said the risk/reward balance remains favorable, given AZO's DIFM momentum and improving parts availability position it exceptionally well to gain market share.
  • Price Action: AZO shares are trading higher by 0.86% at $2,478.16 on the last check Wednesday.
  • Photo Via Company
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