Evercore ISI analyst Greg Melich upgrades AutoZone, Inc. (NYSE:AZO) from In-Line to Outperform, raising the price target from $2,640 to $2,700.
On the broader end, industry drivers as favorable, including record age of vehicle fleet, above average inflation, rising miles driven, and favorable trade-down positioning, the analyst adds.
AZO is posting strong web traffic gains, with improving shopping intention flagged by HundredX data.
The analyst is remarkably upbeat about the stock’s 6% price decline since reporting quarterly results, as it reflects an attractive entry point for an industry leader in a favored auto aftermarket (retail sub-sector). Melich sees a high single digits DIFM growth in the near term, with the potential for a re-acceleration over time.
The analyst notes that AutoZone’s same-store sales are expected to grow around 3%, with margins recovering following several years of price investment.
Melich also applauds AZO’s USD cash flow, small ticket exposure, and mild cyclicality with trade-down positioning and share gain to keep the earnings compounding.
The analyst believes a hot summer / relatively low fuel prices can also help the cyclical outlook of the stock.
Overall, while AZO is not immune to macro headwinds, the analyst does see an upside to Street estimates for a historical market leader that has underperformed YTD vs. peers and the S&P broadly.
Price Action: AZO shares are trading higher by 1.9% to $2,408 on the last check Monday.
