AutoZone Inc (AZO, Financial) stock experienced a daily loss of -1.11%, and a 3-month gain of 3.53%, as of September 27, 2023. With a reported Earnings Per Share (EPS) of 132.67, the question arises: is the stock fairly valued? This article aims to provide an in-depth analysis of AutoZone (AZO)'s intrinsic value, helping investors make informed decisions.
Company Overview
AutoZone is a leading seller of aftermarket automotive parts, tools, and accessories to do-it-yourself customers in the United States. The company has a growing presence in Mexico and Brazil, with 6,943 stores as of the end of fiscal 2022. AutoZone's current stock price is $2525, with a market cap of $45.10 billion. This article will explore whether this price aligns with the company's intrinsic value, also known as the GF Value.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line represents the stock's fair trading value, and the stock price is expected to fluctuate around this line. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is below the GF Value Line, its future return will likely be higher.
AutoZone's GF Value
Based on the GF Value calculation, AutoZone (AZO, Financial) appears to be fairly valued. The GF Value is calculated based on the historical multiples the stock has traded at, past business growth, and future estimates of the business' performance. Given AutoZone's current price of $2525 per share and a market cap of $45.10 billion, the stock shows every sign of being fairly valued. Therefore, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Assessing the financial strength of a company is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. AutoZone's cash-to-debt ratio of 0.1 is worse than 80.84% of companies in the Retail - Cyclical industry. However, the overall financial strength of AutoZone is 5 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. AutoZone has been profitable 10 years over the past decade, with an operating margin of 19.9%, ranking better than 93.63% of companies in the Retail - Cyclical industry. The 3-year average annual revenue growth rate of AutoZone is 19%, ranking better than 81.39% of companies in the Retail - Cyclical industry. The 3-year average EBITDA growth rate is 20.8%, ranking better than 71.43% of companies in the same industry.
ROIC Vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, AutoZone's ROIC is 29.46 while its WACC came in at 6.5.
Conclusion
In conclusion, AutoZone (AZO, Financial) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 71.43% of companies in the Retail - Cyclical industry. To learn more about AutoZone stock, you can check out its 30-Year Financials here.
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