AutoZone Set To Gain As Tariffs Push Car Owners To Repair Over New Purchases: Analyst

BofA Securities upgraded AutoZone (AZO) to Buy with a price target of $4,800, up from $3,900, based on confidence in the company's recession resilience, market share gains in both DIY and professional segments, and potential benefits from industry-wide inflation. The upgrade reflects a shift to a 27x FY2026E EPS multiple from the previous 22x, with the analyst projecting Q3 EPS of $38.15 and domestic comparable sales growth of 2.0%, citing strong March sales driven by tax refunds and favorable used car market dynamics. AutoZone's limited exposure to Chinese tariffs, with only about one-third of its products sourced from China, positions it favorably to navigate the current environment, as consumers are expected to repair existing vehicles rather than purchase new ones amid rising new vehicle costs.

Analysis

BofA Securities has upgraded AutoZone (AZO) to Buy from Neutral, increasing its price target to $4,800 from $3,900, reflecting a significant shift in valuation to a 27x FY2026E EPS multiple from the previous 22x. This upgrade is underpinned by growing confidence in AutoZone's resilience during economic downturns, its ability to gain market share in both DIY and professional segments, and the potential benefits from price increases amid industry inflation. For the upcoming third quarter, the analyst projects EPS of $38.15, exceeding the consensus estimate of $36.80, alongside domestic comparable sales growth of 2.0%, slightly below the 2.4% consensus. This outlook is supported by strong March sales momentum, reportedly driven by the timely issuance of tax refunds and sequential improvement indicated by Bloomberg Second Measure data. However, a 19 basis point decline in Q3 gross margin is anticipated as the company laps a $24 million LIFO benefit from the prior year. The analysis highlights AutoZone's strategic positioning to navigate potential tariff impacts, with approximately one-third of its product offerings sourced from China, which is comparatively lower than many retail counterparts. It is expected that auto parts retailers, including AutoZone, can pass on tariff-related cost increases to consumers, who are increasingly opting to repair existing vehicles due to rising new car prices – a trend potentially exacerbated by tariffs that could add an average of $3,285 to U.S.-assembled vehicles. This consumer behavior shift, coupled with ongoing market share gains and strength in its Pro segment, is expected to drive sustained demand for AutoZone's products, despite AZO shares trading 0.53% lower to $3,859.76 at the time of the report.

Key Decisions for Investors

• Investors should consider the analyst's upgraded Buy rating and substantially increased price target, which suggests a more optimistic long-term earnings outlook for AutoZone, particularly given its revised FY2026E EPS multiple.
• Monitor AutoZone's upcoming Q3 earnings release on May 27, focusing on actual EPS versus the analyst's $38.15 projection, domestic comparable sales growth against the 2.0% forecast, and management's commentary on gross margin pressures and the LIFO impact.
• Evaluate AutoZone's ability to capitalize on the anticipated consumer trend of repairing older vehicles and its effectiveness in passing through potential inflation and tariff-related cost increases, as these are key drivers of the bullish thesis.
• Assess the ongoing performance of the Pro segment and market share dynamics, as continued strength in these areas is crucial for validating the analyst's positive outlook.