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Should Investors Buy AZO Stock as Growth Meets Margin Concerns?
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Key Takeaways
AutoZone's commercial sales rose 10.6% in fiscal 2026, aided by inventory and Hub expansion.
AutoZone opened 374 stores in fiscal 2026 and plans about 400 new stores in fiscal 2027.
AutoZone's gross margin fell to 52.3% as mix shifts and LIFO charges pressured results.
AutoZone, Inc. (AZO - Free Report) is balancing growth investments with valuation and profitability considerations as the company expands its commercial business, store network and supply chain capabilities. The company’s growth initiatives support its long-term strategy, although margin pressure, consumer trends and leverage remain key factors for investors to monitor.
AutoZone Growth Drivers Support the Long View
AutoZone’s domestic commercial business continues to be a key growth driver. Domestic commercial sales increased 10.6% in fiscal 2026, supported by improved inventory availability, Hub and Mega Hub expansion, faster delivery capabilities and the Duralast brand. The company ended fiscal 2026 with 6,443 domestic commercial programs. Its commercial programs were available in 94% of domestic stores.
Store expansion is another part of AutoZone’s growth strategy. The company opened 374 stores in fiscal 2026, the highest annual store opening level in its history, and ended the year with 8,031 locations globally. AutoZone plans to continue expanding its footprint, including additional Mega Hub locations designed to improve product availability and support both professional and DIY customers. The company had 172 Mega Hubs at fiscal year-end and plans to open more than 40 Mega Hubs in fiscal 2027. Management expects approximately 400 new stores in fiscal 2027.
International expansion also remains a long-term focus. AutoZone ended fiscal 2026 with 1,001 stores in Mexico and 167 stores in Brazil. Management expects international same-store sales growth in fiscal 2027 as investments in stores, inventory and supply chain capabilities continue.
AutoZone Faces Margin and Consumer Risks
AutoZone’s faster-growing commercial business may create pressure on gross margins as the sales mix shifts. Gross margin declined 29 basis points in fiscal 2026 to 52.3%, partly reflecting inventory cost dynamics and LIFO charges. Management expects fiscal 2027 gross margins to be flat to up 25 basis points on a GAAP basis and anticipates approximately $85 million to $90 million of LIFO charges during the year.
Consumer trends in the DIY segment remain another consideration. Domestic DIY same-store sales declined 0.6% in the fourth quarter of fiscal 2026, as higher inflation and lower customer traffic affected transactions. Management expects domestic same-store sales to be flat to up low single digits in fiscal 2027.
AutoZone’s Balance Sheet
AutoZone continues to generate substantial cash flow, providing funds for expansion and shareholder returns. The company generated approximately $1.8 billion in free cash flow during fiscal 2026 and repurchased $2 billion of stock during the year.
At the same time, AutoZone ended fiscal 2026 with $9.1 billion in debt. The company’s leveraged capital structure remains a factor as it balances store growth, capital spending and share repurchases. Management reported leverage of 2.5X EBITDAR at fiscal year-end.
AZO’s Valuation and Estimates
AutoZone trades at 16.45X forward 12-month EPS, below its five-year median multiple and the Zacks sub-industry.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for AZO’s fiscal 2027 sales and EPS implies year-over-year growth of 7.6% and 13.4%, respectively.
Our Take
AutoZone is a good business, and its valuation looks reasonable, but near-term risks limit the upside. Record store openings and double-digit commercial growth are real strengths. But margins are under pressure from mix shift and LIFO charges, and the outlook for flat to low-single-digit domestic same-store sales leaves little room for surprise. Leverage is also worth watching, with $9.1 billion in debt.
Current shareholders should hold the stock. New investors can wait for a better entry point.
Zacks Rank & Stocks to Consider
AZO currently carries a Zacks Rank #3 (Hold).
Better-ranked players in the auto space include Honda (HMC - Free Report) , Oshkosh Corp. (OSK - Free Report) and PACCAR (PCAR - Free Report) . While Honda sports a Zacks Rank #1 (Strong Buy), Oshkosh and PACCAR carry a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for HMC’s fiscal 2027 and 2028 EPS implies year-over-year growth of 208% and 58%, respectively.
The Zacks Consensus Estimate for OSK’s 2026 and 2027 EPS implies year-over-year growth of 1% and 28%, respectively.
The Zacks Consensus Estimate for PCAR’s 2026 and 2027 EPS implies year-over-year growth of 18% and 22%, respectively.
View the Zacks #1 Rank List
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Should Investors Buy AZO Stock as Growth Meets Margin Concerns?
Key Takeaways
AutoZone, Inc. (AZO - Free Report) is balancing growth investments with valuation and profitability considerations as the company expands its commercial business, store network and supply chain capabilities. The company’s growth initiatives support its long-term strategy, although margin pressure, consumer trends and leverage remain key factors for investors to monitor.
AutoZone Growth Drivers Support the Long View
AutoZone’s domestic commercial business continues to be a key growth driver. Domestic commercial sales increased 10.6% in fiscal 2026, supported by improved inventory availability, Hub and Mega Hub expansion, faster delivery capabilities and the Duralast brand. The company ended fiscal 2026 with 6,443 domestic commercial programs. Its commercial programs were available in 94% of domestic stores.
Store expansion is another part of AutoZone’s growth strategy. The company opened 374 stores in fiscal 2026, the highest annual store opening level in its history, and ended the year with 8,031 locations globally. AutoZone plans to continue expanding its footprint, including additional Mega Hub locations designed to improve product availability and support both professional and DIY customers. The company had 172 Mega Hubs at fiscal year-end and plans to open more than 40 Mega Hubs in fiscal 2027. Management expects approximately 400 new stores in fiscal 2027.
International expansion also remains a long-term focus. AutoZone ended fiscal 2026 with 1,001 stores in Mexico and 167 stores in Brazil. Management expects international same-store sales growth in fiscal 2027 as investments in stores, inventory and supply chain capabilities continue.
AutoZone Faces Margin and Consumer Risks
AutoZone’s faster-growing commercial business may create pressure on gross margins as the sales mix shifts. Gross margin declined 29 basis points in fiscal 2026 to 52.3%, partly reflecting inventory cost dynamics and LIFO charges. Management expects fiscal 2027 gross margins to be flat to up 25 basis points on a GAAP basis and anticipates approximately $85 million to $90 million of LIFO charges during the year.
Consumer trends in the DIY segment remain another consideration. Domestic DIY same-store sales declined 0.6% in the fourth quarter of fiscal 2026, as higher inflation and lower customer traffic affected transactions. Management expects domestic same-store sales to be flat to up low single digits in fiscal 2027.
AutoZone’s Balance Sheet
AutoZone continues to generate substantial cash flow, providing funds for expansion and shareholder returns. The company generated approximately $1.8 billion in free cash flow during fiscal 2026 and repurchased $2 billion of stock during the year.
At the same time, AutoZone ended fiscal 2026 with $9.1 billion in debt. The company’s leveraged capital structure remains a factor as it balances store growth, capital spending and share repurchases. Management reported leverage of 2.5X EBITDAR at fiscal year-end.
AZO’s Valuation and Estimates
AutoZone trades at 16.45X forward 12-month EPS, below its five-year median multiple and the Zacks sub-industry.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for AZO’s fiscal 2027 sales and EPS implies year-over-year growth of 7.6% and 13.4%, respectively.
Our Take
AutoZone is a good business, and its valuation looks reasonable, but near-term risks limit the upside. Record store openings and double-digit commercial growth are real strengths. But margins are under pressure from mix shift and LIFO charges, and the outlook for flat to low-single-digit domestic same-store sales leaves little room for surprise. Leverage is also worth watching, with $9.1 billion in debt.
Current shareholders should hold the stock. New investors can wait for a better entry point.
Zacks Rank & Stocks to Consider
AZO currently carries a Zacks Rank #3 (Hold).
Better-ranked players in the auto space include Honda (HMC - Free Report) , Oshkosh Corp. (OSK - Free Report) and PACCAR (PCAR - Free Report) . While Honda sports a Zacks Rank #1 (Strong Buy), Oshkosh and PACCAR carry a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for HMC’s fiscal 2027 and 2028 EPS implies year-over-year growth of 208% and 58%, respectively.
The Zacks Consensus Estimate for OSK’s 2026 and 2027 EPS implies year-over-year growth of 1% and 28%, respectively.
The Zacks Consensus Estimate for PCAR’s 2026 and 2027 EPS implies year-over-year growth of 18% and 22%, respectively.
You can see the complete list of today’s Zacks #1 Rank stocks here.