Barclays raises AutoZone price target to $3,916, maintains rating

Barclays raised its AutoZone (AZO) price target to $3,916, maintaining an Overweight rating, citing confidence in the company's strategic direction despite a revised FY25 EPS forecast; this follows AutoZone's Q3 earnings, where revenue beat expectations at $4.46B but EPS fell short at $35.36 due to gross margin contraction of 80 bps to 52.7%. Other firms like Truist and CFRA also adjusted price targets, noting AutoZone's market share gains and strategic investments alongside challenges like FX impacts, with management optimistic about margin improvements from new distribution centers.

Analysis

Barclays has revised its price target for AutoZone (NYSE: AZO) upwards to $3,916 from $3,585, while maintaining an Overweight rating, signaling continued confidence despite a downward revision to the FY25 EPS forecast. This optimism is rooted in AutoZone's Q3 sales growth across both do-it-yourself (DIY) and do-it-for-me (DIFM) sectors, which, according to Barclays analyst Seth Sigman, reinforces the company's strategic direction. AutoZone's recent Q3 earnings presented a mixed picture: revenue reached $4.46 billion, exceeding the $4.42 billion forecast, driven by a 5% increase in domestic same-store sales and an 8.1% rise in international same-store sales (constant currency). However, EPS was $35.36, falling short of the $37.10 expectation, primarily due to an 80 basis point contraction in gross margin to 52.7%. Despite this, AutoZone exhibits robust financial health, with $18.7 billion in revenue over the last twelve months, a 53% gross profit margin, and a 15% return on assets. Sigman anticipates stronger EPS performance in FY26, contingent on the stabilization of foreign exchange rates and investments. AutoZone, a significant player in Specialty Retail with a $61.9 billion market capitalization, has demonstrably gained market share. Management acknowledges the margin pressures but anticipates improvements in Q4, supported by new distribution centers and ongoing investments in technology and supply chain. Other analysts echo this sentiment; Truist Securities raised its target to $4,038 (Buy), and CFRA adjusted its target to $4,200 (Buy), both citing market share gains and strategic investments while noting FX and margin challenges.

Key Decisions for Investors

• Investors should closely monitor AutoZone's gross margin performance in the upcoming fourth quarter for signs of the anticipated improvement, as this is a key factor impacting EPS.
• Consider the company's ongoing market share gains and strategic investments in distribution and technology as potential long-term growth drivers, despite near-term margin pressures and FX headwinds.
• Evaluate AutoZone's ability to achieve its FY26 EPS targets, which are predicated on stabilizing external factors and successful execution of its multi-quarter EPS management strategy.