By Sam Boughedda
Morgan Stanley analyst Simeon Gutman upgraded AutoZone (NYSE:AZO) from Equal-Weight to Overweight Thursday, increasing its price target on the stock to $2,420 from $2,125.
In a note to investors, Gutman said the stock offers a potential 20% upside with an "attractive 3:1 bull/bear skew," and the firm favors defensive stocks with offensive characteristics.
"We have more conviction in the durability of AZO's sales/earnings growth than for much of our Retail coverage and other DIY Auto peers. AZO is a self-help story (its commercial playbook is working), the business has a history of prudent expense management, and DIY Auto is a defensive category," wrote the analyst. "These factors enhance AZO's earnings visibility amid an uncertain macro backdrop."
Gutman said the firm is also confident in AutoZone's pricing power.
"Valuation in the mid- to high-teens P/E is justified given AZO's track record of execution, increasing exposure to the higher-growth DIFM segment, and historical premium to the market during economic slowdowns (AZO is trading in-line with the S&P 500 currently vs. a ~20% premium in past recessions). Risk/reward skews positively, with ~47%/~14% upside/downside to our ~$2,960/~$1,725 bull/bear cases and ~20% upside to our PT."