It should have been a double whammy for auto supply stores AutoZone (NYSE:AZO) and O’Reilly Automotive (NASDAQ:ORLY). But in the closing minutes of Friday’s trading session, both stocks were in the green despite a pan from Oppenheimer and an accompanying set of downturning “industry dynamics.”
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Oppenhimer, via analyst Brian Nagel, dropped both stocks from Outperform to merely Perform, suggesting that the tailwinds caused by the COVID-19 pandemic are dying down, which means a loss in both sales and earnings per share (EPS) figures for the auto supply shops. Plus, Nagel also lowered the boom on price targets, cutting back AutoZone’s price target to $2,600 per share and O’Reilly’s to $930 per share.
Nagel goes on to note that he doesn’t look for much price appreciation in either stock and given their current valuations, that may not be a bridge too far. Plus, both of them got a little extra advantage from COVID-19 since they were better able to survive shifts in the supply chain. In addition, they got an edge from people with stimulus checks and few places to go, hanging around the house and fixing up cars in anticipation of being allowed by law to leave again. Yet now, with a UAW strike hitting the Big Three hard and rampant inflation making some reconsider a car purchase—new or used—fixing up the old car may still prove valuable.
What Auto Supply Stocks are Good Buys Right Now?
Both AutoZone and O’Reilly have one thing in common: they’re both considered Moderate Buys by analyst consensus. Even their upside potential is fairly close. O’Reilly Automotive stock comes with 12.15% upside potential on an average price target of $1,011.15. Meanwhile, AutoZone stock offers 10.36% upside potential on an average price target of $2,818 per share.
