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Fly News Breaks for January 6, 2020
ORLY, AZO
Jan 6, 2020 | 08:15 EDT
As previously reported, Wedbush analyst Seth Basham downgraded AutoZone (AZO) to Neutral from Outperform with a price target of $1,225, down from $1,375, as continued momentum is expected and valuation is near peak levels after a 40% rise in shares in 2019. The analyst sees continued top-line momentum from company initiatives but sees modestly more risk from less favorable weather and fading tariff-driven inflation later in the year. While the analyst points out that inventory has increased 300-plus bps faster than sales over the last four quarters, likely helping boost Commercial sales growth, he argues that elevated inventory growth could lead to declines in accounts payable leverage and ROIC by the end of fiscal year 2020. In addition, gross margins may have been boosted recently from inflation under the company's inventory accounting method, but year over year headwinds may ensue by Q4, as O'Reilly Automotive (ORLY) projects they will.
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