Friedman Billings Ramsey is out with a major downgrade on Auto Zone (NYSE:AZO) taking their rating to Underperform from Mkt Perform while lowering tgt to $110.

At a minimum, the firm does not think that AZO's stock price will be able to keep up with its peers, nor with the overall equity market. As with other retailers, sales have likely slowed for the sector since the end of AutoZone's fiscal year (August, 2008). When AZO had last reported, comp store sales were +0.6% and had been helped for that period by the tax stimulus. At Gabelli's after-market automotive conference yesterday in Las Vegas, the firm found most companies generally cautious about current sales trends. Therefore, they estimate that AZO's same-store sales are currently tracking at -2% for 1Q09E.

Separately, they are concerned that competitive pressures will accelerate for AZO, with AZO currently operating at hardline retail sector-high operating margins (EBIT) of 17.1% (LTM), which are up from 14.5% in 2002. Competitor O'Reilly Automotive (ORLY) vows to step up its investment in both inventory and price within its newly acquired CSK stores. This investment is also slated to take place in key markets for AZO (namely, the West Coast).

FBR has revised down their AZO earnings estimates;

Notablecalls: Talking to a especially well connected senior NCN member who thinks this one will kill the stock. He thinks a $10 haircut (towards $110-$112 level) may be in the cards here. - FYI