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stock is trading lower on Wednesday, following a downgrade from BofA, which argues that shares of the auto-parts retailer looks pricey after its recent run up, especially as it faces difficult comparisons ahead.
Analyst Elizabeth Suzuki cut her rating on AutoZone (ticker: AZO) to Underperform from Neutral, while maintaining a price target of $1,390.
She writes that the move comes on the heels of a year-to-date rally that’s seen the stock outperform not only the
but auto parts peers like
(AAP) and
(ORLY). So while spending at auto-parts retailers has been ahead of expectations recently, she argues that much of the good news is already reflected in the AutoZone stock, especially as the company’s valuation is now “well above” its three-year moving average.
That premium price may get harder to justify, Suzuki writes, given that AutoZone faces “very tough” comparisons as we begin to lap the bump it saw in 2020.
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Among the publicly traded auto-parts retailers, she notes that do-it-yourself (DIY) trends—which account for 80% of the company’s business—benefitted AutoZone the most during the pandemic. However that tailwind may be set to reverse: With the end of the crisis in sight, consumers may have less time to spend tinkering in their garages. Moreover, AutoZone has the lowest exposure of the major players to the recovery in professional, or do-it-for-me (DIFM), services.
That leads Suzuki to believe that the upcoming fiscal third quarter, which ends in early May, will be the last quarter that AutoZone reports positive comparable sales growth before “four quarters of very difficult” comps.
AutoZone stock is down 1% to $1,498.96 in recent trading, after rising 26.5% year to date, and 50% in the latest 12 months. Barron’s recently recommended shares of rival O’Reilly, citing in part the company’s strong relationship with professional garages.
Write to Teresa Rivas at teresa.rivas@barrons.com
