Analysts Grow Bullish On Auto Parts Retailers as Shorts Flee

Short interest fell sharply on AZO, AAP, and ORLY

by Josh Selway

Published on Jan 5, 2018 at 10:16 AM

Like many retail stocks, auto parts suppliers AutoZone, Inc. (NYSE: AZO), Advance Auto Parts, Inc. (NYSE:AAP), and O'Reilly Automotive Inc (NASDAQ:ORLY) disappointed in 2017, with all three stocks touching multi-year lows. But more recently this group has outperformed. In fact, AZO, AAP, and ORLY have each beat out the performance of the S&P 500 Index (SPX) over the past two months -- and quite easily, at that. What's more, sentiment could be starting to shift on this group, as analysts grow bullish and short sellers cover their positions.

Just this morning Barclays weighed in bullishly on the entire retail sector, upgrading its outlook to "positive" from "negative." The brokerage firm believes the new tax bill will be a boon to retail stocks in 2018. In the note, the covering analysts raised the price target on AutoZone to $1,000 from $800, the target on Advance Auto Parts to $105 from $90, and the target on O'Reilly to $300 from $234.

However, Barclays wasn't the only firm to raise its opinion on the auto parts retailers. RBC also lifted its price targets on AZO, AAP, and ORLY this morning, setting the bar at $820, $127, and $289, respectively. And this comes after Credit Suisse yesterday hiked its price target on AutoZone and O'Reilly, while ORLY and Advance Auto also saw their price targets lifted at UBS.

As alluded to, all these stocks have also been benefiting from a round of short covering. In the last two reporting periods alone, short interest on AAP fell by close to 32%. For AZO, the drop was 24.4%, and ORLY saw short interest decline by 19.6%. If this trend continues it could mean more upside for the securities.

So far today, AutoZone shares have jumped 1.8% to trade at $774.93, putting them within striking distance of a fresh 52-week high. Advance Auto Parts, meanwhile, has added 1.9% to put it at $113.07, and O'Reilly Automotive is trading 1.8% higher at $262.31. 

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