On Wednesday, Wells Fargo updated its stance on AutoZone (NYSE:AZO), increasing the stock's price target from $3,000.00 to $3,250.00. The firm kept its Overweight rating on the shares, citing "impressive" margin growth and potential for re-acceleration in the second half of the year.
AutoZone's fiscal second-quarter performance showed some areas falling short, particularly in comparable store sales and the Do It For Me (DIFM) segment. However, the company's margins expanded significantly, with an 111 basis points increase. Despite U.S. comps growing only 0.3%, which was below the Street's expectations due to factors like holiday shifts and weather conditions, the core gross margin expansion and a deceleration in SG&A expenses per store contributed to a 10% earnings per share (EPS) beat.
Wells Fargo highlighted the potential for AutoZone's earnings to pick up in the fiscal third quarter, pointing to an easier comparison from the previous year and initiatives to accelerate megahub openings and DIFM operations. The analyst noted that the current share price, trading at approximately 18 times earnings, is 25% lower compared to its peer O'Reilly (NASDAQ:ORLY) Automotive. If the anticipated second-half acceleration occurs, the price-to-earnings (P/E) gap between AutoZone and its competitor could narrow.
The report underlines that despite some mixed results in the recent quarter, AutoZone's strong margin performance and the expected benefits from ongoing initiatives could drive the stock's upside. The firm's revised price target reflects confidence in AutoZone's earnings growth and market position moving forward.
InvestingPro Insights
Following Wells Fargo's optimistic outlook on AutoZone (NYSE:AZO), InvestingPro data and analysis further enrich the narrative surrounding the company's financial health and stock performance. According to InvestingPro data, AutoZone boasts a market capitalization of $51.16 billion, underscoring its significant presence in the auto parts industry. In terms of profitability, the company's P/E ratio stands at 20.11, and it has shown an adjusted P/E ratio of 19.79 over the last twelve months as of Q1 2024, indicating investors' high expectations of future earnings.
AutoZone's revenue growth remains robust, with a 6.6% increase over the last twelve months as of Q1 2024. This growth is reflective of the company's ability to expand despite challenging market conditions. Moreover, the gross profit margin of 52.6% during the same period highlights AutoZone's efficiency in maintaining profitability amid cost pressures.
From an investment standpoint, two InvestingPro Tips provide valuable insights. Firstly, AutoZone's management has been aggressively buying back shares, a move that typically signals confidence in the company's future prospects and a commitment to creating shareholder value. Secondly, despite the positive sentiment, the stock is currently in overbought territory as suggested by the Relative Strength Index (RSI), indicating that it might be due for a pullback or consolidation in the near term.
For readers looking to delve deeper into AutoZone's stock performance and financials, InvestingPro offers additional tips that can guide investment decisions. There are over 10 more tips available, including analysis on earnings revisions, debt levels, and trading patterns. Access these tips and more with a special offer: use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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