Goldman Sachs Becomes More Defensive, Upgrades Autozone

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AutoZone Inc (NYSE:AZO) was upgraded to Buy from Neutral by Goldman Sachs analyst Kate McShane on Monday, with the firm “getting even more defensive.”

McShane said in a wide-ranging note that Goldman views Autozone as defensively positioned in the current environment as the majority of auto part sales (~83% for FY21) are non-discretionary. The firm set a $2,296 price target, up from $1,969.

She added that “demand remains relatively inelastic, allowing AZO to pass through inflationary cost increases.”

“We also note that AZO’s DIFM business has been gaining share in recent quarters, and we expect the company will continue to take share in the highly-fragmented DIFM market from smaller peers (independents, warehouse distributors, etc.) that are likely struggling to compete due to inventory and staffing headwinds,” wrote the analyst. “Additionally, we believe that AZO’s larger DIY exposure relative to peers (~73% of 3Q22 sales) could prove to be more defensive in a recessionary environment.”

“AZO should also continue to benefit from favorable industry-wide tailwinds, such as vehicle owners continuing to maintain older vehicles (average vehicle age of 12.2 years), improving miles driven, and a limited supply of new vehicles (and potentially softening new vehicle demand even if supply improves).”

Autozone shares are currently trading 0.5% above Friday’s close.

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