AutoZone, Inc. (AZO)
Retail de repuestos automotores
AutoZone combines a return on capital of 48%, well above the 10% bar, with a buyback machine that has reduced the share count by more than a third in five years; Fairly valued at current prices, with a +5% projected over 5 years.
- Price
- $3,032.99
- Intrinsic value (5y, base)
- $3,786
- Total annual return (5y)
- 4.5%
- Status (nominal)
- Fairly valued
- Margin of safety
- +0%
The essentials
- Return on invested capital of 48%, sustained by a distribution logistics network (hub stores and mega hub stores) that is difficult to replicate.
- The commercial program already accounts for 31.7% of domestic sales and is growing 6.7% year over year, expanding the base of recurring professional customers.
- No dividend: capital return is 100% via share buybacks, though the pace of buybacks has slowed markedly (from US$3,700 million in fiscal year 2023 to US$1,765 million over the trailing twelve months).
- Fairly valued with a +5% over 5 years versus the current market price, and It trades close to intrinsic value, far from the required margin of safety.
Intrinsic value — two valuation methods
By both methods, the value today (DCF $3,467 · Multiples $3,038) exceeds the market price ($3,033).
Pillars of the analysis
The verdict — today vs 5 years
Today — fairly valued: at $3,033 trades close to its value discounted to today (~$3,038); the discount is positive but does not reach the margin of safety we require (≥38%).
At 5 years — En valor: the target price ($3,786) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.
The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$1,882.
Thesis
The business
AutoZone combines a mature, highly cash-generative counter business with a commercial program that is growing faster than the consolidated business and already accounts for 31.7% of domestic sales. The return on invested capital of 48.0% reflects a distribution and brand franchise that is difficult to replicate, with a moat that remains stable.
The valuation
Valued by the multiples method, with normalized net income as the metric (21× entry multiple today) and an exit multiple that compresses moderately toward year 5, reflecting the deceleration of revenue growth toward a mid-single digit. The 5-year value in the base case is $3,786, versus the current price of $3,033.
The margin of safety
It trades close to intrinsic value, far from the required margin of safety. At the market price, the resulting +5% places the stock in the "Fairly valued" category: the entire return is explained by earnings-per-share growth and share buybacks, given that the company does not pay a dividend.
What to watch
The key disconfirmation test is whether the deceleration in domestic revenue deepens — from tariffs on imported auto parts or a faster migration to electric vehicles — without the commercial program offsetting the loss of traction in the counter business; in that case, the exit multiple assumed in the base case would no longer be justified.
Educational / informational. Does not constitute investment advice.