Goldman Sachs upgrades AutoZone to Buy, lifts Genuine Parts to Neutral

Investing.com -- Goldman Sachs upgraded AutoZone (NYSE: AZO) to Buy from Neutral and Genuine Parts (NYSE: GPC) to Neutral from Sell in a note on Thursday, citing improved risk/reward profiles for both auto parts retailers after recent market moves.

Analyst Kate McShane said the bank now sees “a more attractive risk/reward following the recent selloff” in AutoZone shares and expects the company’s “domestic DIFM business will continue to take share, while DIY demand headwinds are likely to be temporary.” 

Goldman highlighted that AutoZone shares have fallen 13% since Sept. 11, compared with a 4% gain for the S&P 500, creating what the firm views as an appealing entry point.

“We are upgrading AZO to Buy from Neutral as we believe the shares present an attractive risk/reward opportunity following the recent selloff,” Goldman wrote, adding that AutoZone’s strength in the “Do-It-For-Me” (DIFM) market should offset softer “Do-It-Yourself” (DIY) demand trends.

For Genuine Parts, Goldman now sees limited downside given valuation support and improving fundamentals. “We are upgrading GPC to Neutral from Sell as we see the risk/reward as being more balanced at current levels,” McShane wrote, citing “improving trends at both the Automotive and Industrial segments.”

Goldman also noted that a recent Bloomberg report suggested Genuine Parts “may be considering a separation of the company’s Industrial and Automotive businesses.” 

Although GPC has not commented, the bank feels that the narrative “limits near-term downside risk,” given the company’s “depressed valuation relative to peers.”

Goldman concluded that while upside for GPC remains modest, “downside is likely limited from here.”