AutoZone’s higher costs, new investments could slow earnings growth

Investing.com -- Mizuho downgraded AutoZone to Neutral, saying a new investment cycle and rising operating costs are making Wall Street forecasts look too optimistic after another earnings miss.

The brokerage cut its price target to $3550 from $3850. The company faces weaker visibility on the steady double-digit earnings growth investors have come to expect.



While Mizuho called AutoZone one of the strongest long-term compounders in consumer stocks, it said the cost of doing business is now rising in a more lasting way.

AutoZone is entering a period of heavier spending just as demand trends are becoming less certain.

The company plans to accelerate store openings to about 500 a year by fiscal 2028, up sharply from recent levels, alongside more than 160 new large distribution hubs.

The expansion, combined with higher wages, real estate costs and systems spending, is expected to push operating expenses meaningfully higher over the next several years.

The analysts said such cost pressures are not fully reflected in current earnings estimates. Mizuho cut its forecasts for fiscal 2027 and 2028 earnings, now expecting growth of about 7% to 8% a year, roughly half the pace AutoZone delivered over the past decade.

The firm also flagged less room for share buybacks, which have been a major driver of earnings growth for decades. As capital spending rises, Mizuho expects repurchases to slow to about $1.5 billion, well below the $3 billion to $4 billion seen in prior years.

On top of higher spending, Mizuho pointed to lingering cost pressures from inventory accounting, concerns that do-it-yourself auto parts demand could soften under tariff-related stress, and limited scope for further valuation expansion.

AutoZone shares already trade near the high end of their historical range, leaving less upside if margins fail to improve.

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