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AutoZone (AZO) shares are under immense pressure on May 27 as investors punish the company for coming in shy of Street estimates in its fiscal third quarter.
The post-earnings selloff saw AZO break below its 20-day moving average (MA), indicating the bearish momentum may sustain in the near term.
Versus its year-to-date high in early March, AutoZone stock is now down more than 20%.
What Made AutoZone Stock Crumble After Q3 Earnings?
Investors bailed on AZO shares mostly because of a noticeable deceleration in Q3 domestic same-store sales and mounting margin pressures.
While overall revenue went up 8.4% versus the same quarter last year, U.S. comparable sales grew a weaker-than-expected 4.1%, indicating demand is normalizing faster than expected.
On the earnings call, management also revealed that growth slowed aggressively to just 2.9% in the final weeks of Q3 due to adverse weather conditions.
Additionally, AutoZone’s gross margin contracted by 57 basis points to 52.2% because of a non-cash $0 million LIFO (last-in, first-out) inventory charge.
This combination of slowing domestic traction and shrinking margins sparked a massive wave of institutional profit-taking in Memphis-headquartered AutoZone.
TD Cowen Analyst Trims Price Target on AZO Shares
TD Cowen analyst Max Rakhlenko trimmed his price target on AutoZone shares sharply to $3,700 after the company’s third-quarter financial results.
In his research note, Rakhlenko dubbed the company a “show me” story in the near term, adding that management must now grow market share organically, through pure transaction volume, not price hikes.
Meanwhile, the derivatives market is even more cautious on AZO. The put-to-call ratio on contract expiring mid-July sits at 12.15x currently, indicating a strongly bearish skew.
And the lower price on those contracts set at roughly $2,890 suggests AutoZone could sink another 4%-plus over the next two months.
What’s the Consensus Rating on AutoZone?
Heading into Wednesday, Wall Street analysts had a consensus “Strong Buy” rating on AZO stock, with a mean price target of about $4,283.
However, it’s reasonable to assume that negative revisions, like TD Cowen’s, will follow now that the company has posted a muted Q3, raising concerns of a domestic slowdown and continued pressure on margins.
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