AZO: Market Share Gains Will Drive Outperformance Despite Margin Headwinds

Analysts have modestly raised AutoZone's fair value estimate to $4,583 from $4,570. They cite opportunities for market share gains, ongoing store expansion, and resilience in core demand despite near-term margin headwinds.

Analyst Commentary

Recent Street research reflects a balanced mix of optimism and caution regarding AutoZone’s near-term prospects and long-term trajectory. Analysts point to strong execution in core business segments and ongoing market share gains, but also highlight persistent pressures that could weigh on profitability.

Bullish Takeaways

Bullish analysts continue to view AutoZone’s domestic do-it-for-me and commercial segments as key sources of share gains. They highlight accelerated store expansion and strategic initiatives aimed at driving growth.
Price targets have generally trended upward or remained elevated, with expectations that robust demand for automotive aftermarket parts and resilient same-store sales momentum will support future earnings growth.
Recent commentary underscores confidence in AutoZone’s ability to navigate inflationary trends. Persistent price increases and the needs-based nature of its products have allowed the company to pass through cost pressures with little decline in demand.
Some analysts expect margin pressures, including those driven by LIFO accounting, will be temporary. They anticipate improvements in merchandise margins and see potential for multiple expansion as company execution stabilizes.

Bearish Takeaways

Bearish analysts remain watchful of near-term margin headwinds, particularly from non-cash LIFO impacts and higher-than-expected SG&A expenses, which could persist into coming quarters.
Recent earnings reports were described as mixed, with some misses on earnings offset by in-line or better-than-expected sales. This brings focus to underlying margin stability as a concern for overall valuation.
While store openings provide longer-term growth opportunities, accelerated expansion may also result in short-term profitability pressures and SG&A deleverage, challenging earnings execution in FY26.
Some caution was noted regarding the durability of the do-it-yourself segment. Headwinds from softer DIY demand are expected to be largely temporary but merit monitoring as consumer trends evolve.

What's in the News

On October 9, 2025, AutoZone increased its equity buyback plan by an additional $1,500 million. This raised the total authorization to $33,750 million. (Key Developments)
Between May 11, 2025 and August 30, 2025, AutoZone repurchased 116,928 shares, representing 0.7 percent, for $446.74 million. This completed the repurchase of 44,805,959 shares totaling $31,617.7 million under the ongoing buyback program initiated in 2008. (Key Developments)

Valuation Changes

Fair Value Estimate has increased slightly to $4,583 from $4,570, reflecting updated analyst assumptions.
Discount Rate has risen modestly to 8.69% from 8.56%, indicating slightly higher perceived risk.
Revenue Growth forecast has edged up to 7.83% from 7.62%, signaling more optimistic sales expectations.
Net Profit Margin has decreased marginally to 13.49% from 13.50%, pointing to minor adjustments in profitability outlook.
Future P/E has increased fractionally to 29.41x from 29.36x, suggesting minor changes in valuation multiples assigned to future 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.

How well do narratives help inform your perspective?

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