AZO: Commercial Share Gains Will Drive Strength As Temporary Margin Pressures Recede

Analysts modestly trim their AutoZone fair value estimate to approximately $4,369 from about $4,579, reflecting slightly higher discount rate and lower margin assumptions, even as they highlight resilient same-store sales, ongoing share gains in the do it for me and commercial channels, and largely temporary margin headwinds from LIFO and growth investments.

Analyst Commentary

Street research remains broadly constructive on AutoZone, with most firms maintaining Buy or equivalent ratings and price targets that cluster around or above the current fair value estimate, even as several modestly trim targets to reflect near term margin pressure and a higher rate environment.

Recent notes highlight a mixed but ultimately supportive backdrop, with temporary LIFO and SG&A headwinds weighed against resilient demand, strong commercial execution, and confidence in the company ability to compound earnings over the medium term.

Bullish Takeaways

Bullish analysts see an attractive risk and reward setup after the recent pullback, citing continued strength in the domestic do it for me and commercial business as key drivers of upside versus current valuation.
Several firms have raised or reaffirmed elevated price targets, pointing to accelerating topline trends, stable same SKU pricing, and improving underlying merchandise margins as support for double digit EPS growth over time.
There is broad confidence that initiatives around store expansion, professional penetration, and operational playbook execution can sustain market share gains and justify premium multiples.
Research notes emphasize the needs based nature of auto parts demand and the company demonstrated ability to pass through price with limited elasticity, reinforcing expectations for durable cash generation and ongoing buybacks.

Bearish Takeaways

Bearish analysts, while generally still positive on the long term story, flag Q4 as mixed and highlight that reported earnings are being pressured by LIFO related charges and SG&A deleverage from accelerated growth investments.
There is some concern that margin recovery could take longer than previously modeled, leading to trimmed estimates and slightly lower price targets despite intact underlying demand.
Commentary points to potential short term softness in do it yourself demand and uncertainty around pacing of SG&A leverage, which could cap near term multiple expansion even as comps remain healthy.
Some research suggests that buyback intensity may moderate relative to history, which could lessen one historical support for EPS compounding if operating performance does not fully offset.

What's in the News

AutoZone increased its equity buyback authorization by an additional $1.5 billion on October 9, 2025, bringing the total program size to $33.75 billion (company announcement).
Between May 11, 2025 and August 30, 2025, AutoZone repurchased 116,928 shares, or about 0.7 percent of shares outstanding, for $446.74 million, completing cumulative repurchases of 44,805,959 shares for $31.62 billion under the long running program initiated in 2008 (company filing).

Valuation Changes

The fair value estimate has fallen modestly to approximately $4,369 from about $4,579, reflecting updated assumptions.
The discount rate has risen slightly to about 8.97 percent from roughly 8.75 percent, modestly increasing the cost of capital applied in the valuation.
Revenue growth has increased marginally to around 7.85 percent from about 7.82 percent, indicating a slightly more optimistic topline outlook.
The net profit margin has declined slightly to roughly 13.04 percent from about 13.48 percent, incorporating expectations for somewhat lower profitability.
The future P/E has edged down modestly to about 28.7x from approximately 29.5x, implying a slightly lower valuation multiple on forward earnings.

Expansion of Mega-Hub locations and international stores is expected to drive revenue growth and improve sales margins by enhancing inventory availability.
Investments in advanced technology for distribution centers aim to improve supply chain efficiencies and net margins, while share buybacks enhance earnings per share.
The company faces margin pressures from foreign exchange headwinds, inflation, tariffs, and rising expenses, impacting revenue and earnings unless offset by strong sales growth.

Catalysts

About AutoZone

AutoZone, Inc. retails and distributes automotive replacement parts and accessories in the United States, Mexico, and Brazil.What are the underlying business or industry changes driving this perspective?

AutoZone's focus on improving availability and speed of delivery in the Domestic Commercial business is expected to drive further sales growth, contributing significantly to revenue growth.
The expansion of Mega-Hub locations, with an aim to open at least 19 more in the next two quarters, will enhance inventory availability and support both retail and Commercial growth, potentially improving sales and operating margins.
International expansion, particularly in Mexico and Brazil, with a target of opening 100 new international stores in the fiscal year, is poised to increase revenue and profitability by tapping into underpenetrated markets.
Investments in new distribution centers featuring advanced technology and automation in California and Virginia are expected to create supply chain efficiencies, which should help to improve net margins.
AutoZone's consistent share buyback program, supported by strong free cash flow generation, is set to continue enhancing earnings per share (EPS) over time.

AutoZone Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming AutoZone's revenue will grow by 6.0% annually over the next 3 years.
Analysts are assuming AutoZone's profit margins will remain the same at 13.6% over the next 3 years.
Analysts expect earnings to reach $3.1 billion (and earnings per share of $198.33) by about September 2028, up from $2.6 billion today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.1x on those 2028 earnings, up from 28.0x today. This future PE is greater than the current PE for the US Specialty Retail industry at 18.7x.
Analysts expect the number of shares outstanding to decline by 1.04% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.57%, as per the Simply Wall St company report.

AutoZone Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The impact of foreign exchange rates resulted in significant headwinds, reducing sales by $91 million and EBIT by $30 million, which could continue to negatively impact reported revenue and earnings.
The variations in performance across different regions, particularly the Northeast and Rust Belt, due to severe weather conditions, show volatility in sales, which might affect consistent revenue streams.
Persistent inflationary pressures expected to increase ticket prices by approximately 3% and result in lower transaction counts, indicating consumer caution about spending, potentially impacting overall revenue.
20% tariffs on SKUs from China could pose additional cost pressures; historically, maintaining margin post-tariffs has been challenging, leading to potential impacts on net margins if not offset efficiently.
Continued investment in aggressive expansion and technology are leading to higher SG&A expenses, causing margin pressures and limiting earnings growth unless sales growth compensates for these costs.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $4202.409 for AutoZone based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $4900.0, and the most bearish reporting a price target of just $2900.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $22.5 billion, earnings will come to $3.1 billion, and it would be trading on a PE ratio of 28.1x, assuming you use a discount rate of 8.6%.
Given the current share price of $4291.12, the analyst price target of $4202.41 is 2.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

AZO: Accelerated Store Expansion Will Drive Continued Market Share Gains