AutoZone: The Business Held Up, The Valuation Did Not

AutoZone remains a Buy, now driven by compressed valuation and moderate earnings growth rather than expectations of rapid margin normalization. Revenue growth exceeded expectations, with commercial sales up 10% and the store base surpassing 8,000 locations, but margin normalization and ROIC lagged prior assumptions. LIFO expense is finally normalizing, improving EPS visibility; Q4 results will hinge on merchandise margin, SG&A leverage, commercial growth, and DIY traffic trends. At $2,881, AZO trades at 16x FY2027 EPS, offering a more attractive risk/reward profile than last year’s high-multiple entry.