Our $60 target price is based on ~21x FY26 EPS or 5.5x EV/FY26 EBITDA. The growing appeal of the auto parts retail category and improving sales performance justify a valuation premium to  the company's historical average, but especially since AAP is "under-earning" vs. its long-term margin targets. Execution still needs to see continued improvement. 

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.