AutoZone, Inc. (AZO)

By both methods, the value today (DCF $3,467 · Multiples $3,063) exceeds the market price ($3,043).

Today — fairly valued: at $3,043 trades close to its value discounted to today (~$3,063); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($3,817) 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 ~$1,898.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($3,043) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (2.1%/year) than we project (5.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$2.3 bn of owner earnings in year 5 (vs ~$2.7 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Resultado operativo (EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

The revenue path starts at TTM growth (+5.7%, within the FY23-FY25 band of 2.4%-7.4%) and decelerates smoothly toward ~4% in year 5, in line with the deceleration already visible in reported growth (FY25 was 2.4% on an FX headwind of US$273 million and the absence of the 53rd week of fiscal 2024; in constant currency underlying growth was ~3.9%-4% in fiscal 2025 and accelerated to 5.4%-5.5% in the first 36 weeks of fiscal 2026). The TTM operating margin (18.0%) is depressed by a non-cash LIFO charge of US$104 million and an FX headwind of US$88 million in fiscal 2025; the base case assumes a gradual recovery toward ~19.1% by year 5 as those effects normalize, without returning to the historical peak of 20.5% (fiscal 2024, which included a 53rd week). The share count declines at a pace of ~2%-3% a year in the base case, well below the historical pace of 7-8% a year in 2022-2023, in line with the recent slowdown in the buyback pace (from US$3,700 million in fiscal 2023 to US$1,765 million over the last twelve months) and the reduced remaining authorization (US$0.8 billion at the close of the third quarter of fiscal 2026). It pays no dividend: the entire return of capital is via buybacks. The cross-foot flagged by the previous verification (Σ segments 24.05bn versus XBRL revenue 18.94bn, a 27% discrepancy) is a false positive of data structure: 'Domestic Commercial' is a component of 'Total Consolidated' (31.7% of domestic sales), not an additional segment to be added; AZO reports a single operating segment and there is no sum of the parts. The guidance in the 8-K of 26-May-2026 does not include a numerical revenue or EPS figure for the full fiscal year 2026 (only store openings of ~355-365); the base path is anchored to the TTM trajectory, not to numerical guidance. Invested capital was not determined by the automatic extraction because of a stale short-term debt tag (24 months out of date, US$500 million frozen since May 2024); it is resolved with the 'Selected Balance Sheet Information' table in the release itself: 'Total Debt' of US$9,016,477 thousand at 9-May-2026 matches the XBRL long-term debt tag exactly, confirming that it already captures total debt (the old US$500 million tag is obsolete). Invested capital = equity (−US$2,784,552 thousand) + total debt (US$9,016,477 thousand) − cash (US$253,729 thousand) = US$5,978,196 thousand; ROIC = TTM NOPAT (effective rate 20.3%) / invested capital = 48.02%. TTM ΔNWC is derived from the two working capital figures in the release (−US$1,100,744 thousand at 9-May-2026 versus −US$1,479,824 thousand at 10-May-2025): a cash use of US$379.08 million that is subtracted in owner earnings. It is valued at the enterprise level on EV/EBIT over operating income: cash (US$253,729 thousand) and total debt (US$9,016,477 thousand) enter the bridge to equity value; the DCF, by contrast, runs at the equity level (owner earnings = net income + D&A − maintenance capex − ΔNWC, net cash at 0). The current dividend per share is US$0 (AZO pays no dividends; 100% of the return of capital is via share repurchases).

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $3,817 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $3,043, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $3,817 in 5 years and a required return of 4.5% annually, the maximum to pay today is $3,063. Against the current market price ($3,043), the margin of safety is 0.7% (trades below the maximum → there is margin) and the total return at that price would be 4.6% annually.

• Multiple relative to quality. The current entry multiple (17×) already reflects much of the business's quality; the margin of safety today is limited.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (87%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. Return on invested capital of 48.0%, well above the 10% bar.
• Cash generation. Consistent operating cash flow (US$3,072 million TTM) that funds growth capex and the entire buyback program without resorting to material incremental debt.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

AutoZone's growth combines net store openings (accelerated from 217 in fiscal year 2024 to 304 in fiscal year 2025, with guidance of ~360 for fiscal year 2026), same-store sales (dominated by the domestic segment), and expansion of the commercial program, which already accounts for 31.7% of domestic sales and is growing faster than the counter business.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (09-may-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Growth quality. Operating leverage was partially offset in fiscal year 2025 by the non-cash LIFO charge and the FX headwind; recent growth relies more on the commercial program than on the counter business.

• Recurrence and predictability of demand. Vehicle repair demand is largely non-discretionary and grows with the age of the vehicle fleet (12.8 years average, 43% of vehicles 7 years or older).
• Pricing power. Private-label brands and differentiated service sustain margin against discount competitors.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• !Interest coverage (EBIT / interest)7.6x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 87% of ROIC
• ✓Value creation (ROIC − 10% bar)+38pp
• !Malinvestment test (capex vs incremental ROIC)Capex/D&A 2.2x
• !Float / working capitalConsumes cash $0.4 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.7% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Negative equity from buybacks. Book equity is negative due to sustained share buybacks, not operating losses; debt remains investment-grade.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

AutoZone pays no dividends: it reinvests in new store openings and its logistics network (capex of US$1,439 million over the trailing twelve months) and returns the rest of its cash flow to shareholders exclusively via share buybacks (US$1,765 million over the trailing twelve months), which reduced the diluted share count from more than 20 million to less than 17 million in three years.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. 100% of the free cash flow remaining after growth capex is directed to share buybacks at a disciplined pace, with no dividend or scattered acquisitions.
• Incentive alignment. Insider ownership by management and the board is low (2.6% per the proxy), with no controlling shareholder or founding family.

• No sign of missing buyers: institutional ownership is high and stable, with no evidence of a spin-off, illiquidity, or scarce analyst coverage.
• No sign of motivated sellers: no one-off, restructuring, or recent below-consensus result that would explain a discount to going-concern value.
• The price already reasonably reflects the quality of the business (return on capital well above the 10% bar, stable moat) against revenue growth that is decelerating toward a mid-single digit.

It trades close to intrinsic value, far from the required margin of safety. Without an identifiable source of discrepancy between perception and reality, today's Fairly valued reads as a quality business that is correctly valued, not a classic value opportunity.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -4%/year (-20% total): the margin of safety protects the downside. The bull (+10%/year, +63% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Tariffs and the transition to electric vehicles. The sector is highly competitive and fragmented; the company acknowledges that online competitors have a lower cost structure, and tariffs on imported auto parts pressure inventory replacement cost.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 48% above the 10% bar, but the margin is limited (+1%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a multiple/growth of 3.3 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 7% (EBIT/EV) + ROIC 48% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 2% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -4%/yr, bull-scenario ceiling +10%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: network effects, intangibles, switching costs, efficient scale, cost advantage → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 2%, within what we project (5%) — the story squares with the numbers.