Our $40 target price is based on ~15x FY26 EPS, which is equal to the 10-year average of 16x. We like the defensive appeal of the auto parts retail category,  but AAP is struggling to compete with AZO & ORLY who are better positioned to gain market share in a competitive environment. 

The main upside risks to our rating and target price are a faster-than-expected recovery in DIFM market share, margin expansion upside, and higher-than-expected share buyback resulting in EPS accretion. 

The main downside risks to our rating and target price are a slower-than-expected recovery in miles driven, market share loss in DIFM, slower ramp in AAP’s DIY efforts, weaker-than-expected margins, and macro volatility, including rising gas prices.