Goldman Sachs Shakes Up Auto Parts Stocks: Downgrades Genuine Parts, Upgrades AutoZone Amid Economic Volatility

Goldman Sachs analyst Kate McShane on Tuesday highlighted concerns over market volatility, declining consumer activity, and ongoing economic uncertainty within the auto parts retail sector, which are influencing the overall outlook on a few major players in the niche industry.

As a result, the analyst adjusted ratings for Genuine Parts Company (NYSE:GPC) and AutoZone (NYSE:AZO).

Here are the key takeaways from the analyst:

Genuine Parts: McShane downgraded the stock from Neutral to Sell, lowering the price forecast from $133 to $114.

The analyst writes that Genuine Parts is less well-positioned in the current market environment compared to peers like O’Reilly Automotive, Inc. (NASDAQ:ORLY) and AutoZone, mainly due to recent underperformance at its NAPA business, slowing trends in its European Automotive segment, and potential risks from its Industrial division in the face of an uncertain macro environment.

While Genuine Parts’ guidance for FY25 suggests a stronger second half of the year, the analyst views this recovery as dependent on steady improvements in end-market demand, which may face downside risks, particularly if current trends continue to underperform management’s expectations.

The analyst observes that comparable trends at Genuine Parts’ European Automotive business have weakened over the past year, with the potential for continued softness in the near term, raising concerns about the company’s performance in that segment going forward.

The analyst has revised the FY25 EPS estimate to $7.82, down from $7.94, reflecting a more cautious outlook for the second half of the year in terms of both sales and margins.

Additionally, the FY26 and FY27 EPS estimates have been lowered to $8.60 (from $9.09) and $9.55 (from $10.06), indicating ongoing concerns about future performance.

GPC shares are trading lower by 0.81% to $118.18 at last check Tuesday.

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AutoZone: McShane upgraded AutoZone from Sell to Neutral, raising the price forecast from $3,044 to $3,811.

The analyst has upgraded the stock, citing the company’s defensively positioned business, which appears increasingly attractive in the current macroeconomic environment.

Per McShane, key factors include improvements in AutoZone’s “do it for me,” or DIFM business, a recovery in DIY trends, and the auto parts industry’s strong pricing power, which should help offset any potential tariff impacts.

Since being added to the Americas Sell list on October 14, 2024, AutoZone’s shares have risen 19.6%, outperforming the S&P 500, which declined by 4.8%.

The analyst acknowledges that trends in AutoZone’s domestic business have improved, contrary to their previous view, with the company gaining market share and seeing resilient demand, particularly from its DIY customer base.

Meanwhile, the analyst also notes that AutoZone’s current valuation, based on its NTM EV/EBITDA, is above historical levels, indicating that investors are placing greater value on the company’s defensive positioning amid current market uncertainty.

The analyst has increased the FY25 EPS estimate to $148.36, up from $146.65, driven by slightly stronger domestic same-store sales growth and revised tax rate assumptions.

AZO shares are trading lower by 0.03% to $3,811.74 at last check Tuesday.

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