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- AutoZone (NYSE:AZO) lands on Bank of America's top 10 U.S. Ideas List for Q1 on the short side.
- BofA expects demand for do-it-yourself auto maintenance to decelerate in a development that could pressure revenue growth for AutoZone due to approximately 80% of its sales being generated by the DIY segment.
- "AZO’s higher exposure to lower-income customers than peers also presents outsized risk to AZO’s sales as last year’s stimulus payments are lapped. In addition to deceleration in sales growth, we see risk to AZO’s margin profile."
- DIYers are noted to be a higher gross margin customer base than professional repair shops, so the anticipated channel mix shift away from DIY is called an inevitable gross margin headwind.
- "Combined with AZO’s investments in price (price cuts) aimed at generating market share gains in the DIFM channel, we expect YoY gross margin compression to continue. In prior periods when AZO’s domestic same-store sales (comp) growth has turned negative, the stock has traded at an average 1-year forward P/E of 12.0X." BofA sees a reversion to AZO’s 5-year average of 15X as DIY auto parts demand decelerates and earnings growth slows.
- The firm starts off the year with an Underperform rating on AZO.
- Shares of AutoZone (AZO) are down 0.91% premarket to $2,077.32 vs. the 52-week trading range of $1,111.71 to $2,110.00.
- Counterpoint: Read why Seeking Alpha George Dagnino is positive on AZO.