AutoZone: Forget the Pullback, This Stock Is Still Climbing

Key Points

• Autozone's uptrend is long in the tooth but can continue because of results and analysts' sentiment trends.
• The company's robust cash flow and aggressive share repurchases underpin the rally. 
• Growth investments cut into Q2 results but will pay off later in the year and for years to come.

Investors looking to get into Autozone NYSE: AZO on a deep pullback may have a long time to wait. This must-have buy-and-hold company’s FQ2 2025 earnings results underscore its quality and potential, leading analysts to raise their price targets and lead the market higher. This is a critical factor because the upgrade cycle is long in the tooth but still provides sufficient momentum with the coverage rising, the sentiment firming, and the price target rising. 

Autozone’s positive analyst trends continued after the Q2 release, with 16 of 24 analysts tracked by MarketBeat issuing revisions. The fresh revisions include a single downgrade to Hold from Buy, offset by a reiterated Buy with an above-consensus price target and 14 price target increases. The range of new targets lifts the low-end, consensus, and high-end range, forecasting a 2% increase in the share price at the mid-point.

The consensus rose 7% overnight and 20% in the 12 months preceding the report and will likely continue to rise in 2024. Analysts made note of the company’s impressive growth potential, strength in the commercial segment, and widening margin. 

Autozone Moves Higher on Weak Results: Here’s Why

Autozone’s Q2 results were weak relative to consensus forecasts, but the market looked past the headlines to the core numbers and was more impressed. The top-line 2.4% growth is weaker than expected due to FX headwinds. Domestic comp store growth is up 1.9%, led by a nearly 8% increase in commercial sales, while internationally, it is up 9.5% on an FX-neutral basis. 

Margin news is also mixed for this retail stock, but weaker-than-expected results were overlooked due to their cause and the company’s financial condition. The company reported a flat gross margin but increased operating costs tied to its growth investments. The critical details are that GAAP operating income declined by 4.9% despite the top-line growth.

Still, the increased investment won’t be repeated in future quarters and is expected to sustain growth and widen margins as projects are completed—investments center on expanding the store count and technology to improve efficiency and customer satisfaction. 

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Another critical detail is that GAAP earnings fell short of consensus by nearly $0.70, but the $28.29 EPS is sufficient to sustain the company’s robust financial health and capital return. The capital return is 100% share repurchases, which reduced the count by an average of 3.2% in Q2.

Buybacks are expected to continue aggressively through year’s end and beyond, reducing the count by a moderate single-digit amount each year. 

Institutional Activity Provides a Tailwind for Autozone Shares in 2205

The institutional activity has provided a tailwind for Autozone shares since Q1 of 2024, and it is strengthening. The institutions have bought on balance each quarter since 2024, and their activity ramped higher as the year progressed and hit a new multi-year high in Q1 of 2025.

This is a strong tailwind because the institutions own more than 93% of the stock and can be expected to continue buying on balance as the year progresses. 

The price action in AZO shares is bullish following the release. The market for the stock is trading at a new all-time high and is likely to continue higher because of the outlook and indicators. The indicators reveal a market with room to run and a high likelihood of sustaining its uptrend.

Regarding a pullback, the best investors should expect in early 2025 is for the market to consolidate at or near current levels before extending its trend to new highs. The market for AZO stock could gain another $500 to trade at $4,000 in that scenario.