AutoZone Earnings: Growth Slows as Inflation Moderates, but Long Term Remains Bright; Shares Rich

Our $2,050 per share valuation of narrow-moat AutoZone should not change much after the firm posted lackluster third-quarter results (1.9% same-store sales growth in the period ended May 6). Our reaction would have mirrored the trading price’s mid-single-digit percentage swoon after the news were it not for a time value of money adjustment that should offset much of the impact. However, we attribute much of the underperformance to transitory factors including wet March weather and difficult comparisons rather than a material change in the firm’s trajectory, so our long-term forecast still assumes mid-single-digit top-line annual growth rates and roughly 20% operating margins. We suggest investors await a more attractive entry point, as we believe the current trading price leaves little room for error.