AutoZone, Inc. (AZO): A Bull Case Idea

We got here throughout a bullish thesis on AutoZone, Inc. (AZO) on The Compounding Tortoise’s Substack. On this article, we are going to summarize the bulls’ thesis on AZO. AutoZone, Inc. (AZO)’s share was buying and selling at $3,658.59 as of 11^th June . AZO’s trailing and ahead P/E had been 24.79 and 21.64 respectively in response to Yahoo Finance.

An engineer at a workbench surrounded by automotive components, instruments, and microchips.

AutoZone reported its Q3 2025 outcomes right this moment, exhibiting a notable rebound in same-store gross sales progress throughout each its Business (DIFM) and DIY segments. Regardless of this top-line momentum, earnings got here beneath stress from elevated discretionary SG&A bills, rising CAPEX, and ongoing FX headwinds, resulting in declines in EBIT and EPS.

The market reacted with a 4.5% drop within the inventory, though shares stay up 14% year-to-date, mirroring peer O’Reilly Automotive’s efficiency. This time final yr, each names had been buying and selling close to bear market ranges, and a contrarian, valuation-focused strategy led to aggressive additions in each positions. That transfer paid off, with shares subsequently rallying 34–41%. Nonetheless, as sentiment towards O’Reilly turned euphoric by late January, positions had been trimmed close to 30x FY24 NOPAT, a stage thought-about stretched. Subsequent Q1 outcomes confirmed that rising bills may weigh on O’Reilly’s near- to mid-term progress in NOPAT per share.

In distinction, AutoZone—buying and selling at simply 18.7x FY25 NOPAT versus O’Reilly’s 27.0x—presents a extra engaging relative alternative, even with its heavier DIY publicity, which stays a modest structural headwind. But, the expansion hole between the 2 has narrowed meaningfully, and AutoZone’s upcoming rollout of 19 new mega hubs is anticipated to additional help comps nicely past FY26.

Moreover, with FX pressures anticipated to ease, AutoZone’s momentum has room to proceed. The inventory’s 5% outperformance versus O’Reilly since March might solely be the start, because the setup now clearly favors AutoZone because the main play within the automotive aftermarket sector.

Beforehand, we lined a bullish thesis on AutoZone (AZO) on Substack by Francesco Ferrari in April 2025 that framed the corporate as a low-volatility compounder with best-in-class monetary self-discipline, together with excessive ROIC, regular income progress, and strong margins. The inventory value has appreciated by roughly 1.5% since then. The Compounding Tortoise’s thesis builds on this by contrasting AZO’s valuation and working momentum with rival O’Reilly Automotive, suggesting that AutoZone now holds the sting amid softening FX headwinds, normalized bills, and a strategic mega hub growth. Regardless of current earnings stress, the setup factors to AZO because the extra engaging aftermarket auto play transferring ahead.

AutoZone, Inc. (AZO) isn’t on our record of the 30 Most Widespread Shares Amongst Hedge Funds. As per our database, 67 hedge fund portfolios held AZO on the finish of the primary quarter which was 56 within the earlier quarter. Whereas we acknowledge the danger and potential of AZO as an funding, our conviction lies within the perception that some AI shares maintain higher promise for delivering increased returns and have restricted draw back threat. In case you are on the lookout for a particularly low cost AI inventory that can also be a serious beneficiary of Trump tariffs and onshoring, see our free report on the finest short-term AI inventory.

READ NEXT: 8 Greatest Broad Moat Shares to Purchase Now and 30 Most Vital AI Shares In line with BlackRock.

Disclosure: None. This text was initially revealed at Insider Monkey.