AutoZone, Inc. (AZO) shares held steady Wednesday following a bullish update from JPMorgan that suggests the auto parts retailer is hitting its stride just as consumer demand for car maintenance rebounds.

Analyst Christopher Horvers stuck with his Overweight rating and raised his near-term estimates, pointing to resilient demand patterns and improving long-term earnings potential. His price target stays at $4,850, implying meaningful upside from current levels.

The upgrade in estimates came after stronger-than-expected comparable sales performance, though Horvers noted that lower gross margins tempered some of the enthusiasm. Still, his first-quarter domestic comp forecast now sits above what the broader market is expecting, which is a pretty good sign.

Demand Trends Looking Healthier

Here's the interesting part: Horvers said his industry checks showed no structural slowdown in do-it-yourself demand, despite some choppiness early in the quarter. Better weekend spending patterns and cooperative weather helped restore momentum after that initial volatility.

The analyst expects both DIY and do-it-for-me (DIFM) comparable sales to accelerate from here, driven by firmer inflation, steady underlying demand, and market share gains. Management previously guided for mid-single-digit inflation in the near term, rising to high-single-digit percentages by spring. That's actually helpful for AutoZone because it means the parts they're selling command higher prices.

The Margin Story Gets Complicated

Horvers did trim his gross margin outlook because merchandising benefits came in softer than expected and product mix pressures persisted. There's also an accounting quirk to consider: last year's LIFO (last-in, first-out) inventory impact created a sizable headwind that masked underlying margin strength.

Management expects another substantial LIFO headwind early this year, with pressure easing as the year progresses. Strip out the LIFO effects, and the underlying gross margin should remain flat to slightly positive, which isn't bad given the competitive environment.

On the expense side, Horvers updated his selling, general and administrative outlook to reflect faster store-level cost growth tied to higher comparable sales and expansion efforts. This spending aligns with management's strategy to defend market share and support new store openings, so it's the intentional kind of spending rather than runaway costs.

Earnings Power Improving

Put it all together, and Horvers sees a modestly higher operating margin and slightly stronger earnings per share ahead. More importantly, he believes the earnings revision cycle can start turning positive from here, which matters for investor sentiment.

Rolling estimates forward should boost out-year earnings power as sales velocity picks up and those LIFO headwinds reverse course. That's the kind of setup that tends to work well for stocks over time.

AutoZone shares were up 0.86% at $3,859.62 at the time of publication Wednesday.