AutoZone's (AZO) fiscal Q4 results could mark an "inflection point" for the stock as improving sales trends and easing margin pressure create a clearer path to earnings growth in fiscal 2027, UBS Securities said in a report Tuesday.

The firm expects domestic comparable sales to rise 2.5%, below the 3.6% consensus estimate, reflecting an estimated 8% increase in commercial sales and roughly flat do-it-yourself sales. Sales growth likely "bottomed" in June before improving modestly in July and August, the report said.

Demand has been pressured by financial strain on DIY customers, higher gasoline prices and deferred vehicle maintenance, the report said. However, unit demand could improve as inflation moderates, while new stores, additional megahubs and commercial market-share gains should support growth, according to the report.

Gross margin is expected to rise 15 basis points to 51.7% as the last-in, first-out inventory-accounting headwind eases, the report said. The firm said fading LIFO pressure, maturing stores, moderating expense growth and share repurchases could support "mid-teens EPS growth in fiscal 2027."

UBS forecast adjusted fiscal Q4 EPS of $52.19, below the $54.42 consensus estimate, but said the stock offers "favorable" risk-reward potential.

UBS has a buy rating on AutoZone with a price target of $4,555.

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