AutoZone Pulls Into a Buy-the-Dip Opportunity

AutoZone’s (NYSE: AZO) Q4 earnings report provided the market with a much-needed reason to take profits. Conversely, the uptrending market also offers a buy-the-dip opportunity that risk-averse investors may want to take advantage of.

AutoZone is among the highest-quality blue-chip growth stocks, sustaining a solid single-digit growth pace despite macroeconomic headwinds and generating sufficient capital to repurchase shares aggressively.

AutoZone’s Share Buybacks Are Driving Stock Gains

AutoZone’s buyback activity is central to its stock price rally and unlikely to end soon. As it stands, the company reduced its count by nearly 2% year-over-year in Q4 and by 3.2% for the year, providing significant leverage for its investors.

The only negative aspect is that the persistent buyback activity results in a shareholder deficit on the balance sheet; however, this is an easily overlooked detail given its impact on the stock price, cash flow, and overall balance sheet health. 

AutoZone’s cash flow was a hair shy of the Q4 consensus forecast, but there is a mitigating factor: the company is accelerating its store count openings and increasing inventory to support it, which is sufficient to offset the weakness.

At the close of fiscal 2025, cash declined by 8.8%. However, this was more than offset by higher inventory levels, resulting in a $1 billion increase in current assets, a $2.2 billion increase in total assets, and a reduction in debt.

Revenue Growth Holds Steady Despite Margin Pressures

AutoZone had a strong quarter despite the tough comp to last year. The reported revenue came in at $6.24 billion, up by only 0.5% but this is against a 53-week year. Adjusting for the extra week, AutoZone’s revenue grew by 6.9% on a 4.1% YTD store count increase and 4.5% gain in comp sales. The US segment was the most substantial at 4.8%, but the International Segment is also growing, up 2.1% for the quarter. 

Margin news is the weakest spot in the report, but the acceleration in store growth is why. The gross margin contracted by 98 bps due to increased cost pressures; operating expenses increased by 80 bps due to growth initiatives. The net result is a decline in net income to $837, with weaker-than-expected GAAP EPS of $48.71, but sufficient for an approximately 53% net income to buyback ratio. 

Store Expansion Signals Long-Term Upside

While AutoZone didn't issue forward guidance, its actions speak volumes, showing clear momentum and brand strength. The outlook for an accelerated store count growth is also bullish, suggesting systemwide comp-store growth can be sustained.

The consensus forecast reported by MarketBeat in late September anticipates mid-single-digit revenue growth in 2026, along with wider margins. Earnings are expected to grow at an accelerated mid-teens pace and may exceed the figure. The FOMC’s shift to rate reduction should mitigate macroeconomic headwinds in the upcoming quarters and may even allow tailwinds to emerge. 

Analysts Are Bullish on AZO Stock: Forecast New Highs

Analyst sentiment on AutoZone remains decisively bullish. 25 analysts tracked by MarketBeat have assinged AZO stock a consesnus Moderate Buy rating (with a whopping 98% of individual ratings pegged at Buy), and a rising price target. 

The consensus $4,450 price target predicts a new all-time high for this stock, while the trends indicate a high-end of $4,925, representing a 20% upside when reached. 

AZO’s September price pullback looks like a natural correction within an otherwise bullish market. The critical support target is the 30-day EMA near 3,830, and the uptrend will remain intact, even if it is breached.

The risk in that situation is that AZO stock will enter a consolidation range, keeping it range-bound until mid-2026. Assuming this market confirms support at or above the 30-day EMA, a rebound will likely begin before the year’s end and result in a new all-time high by January. 

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The article "AutoZone Pulls Into a Buy-the-Dip Opportunity" first appeared on MarketBeat.