AutoZone Inc (AZO, Financial) recently experienced a daily decline of 2.78%, yet it boasts a 3-month gain of 6.6%. With an impressive Earnings Per Share (EPS) of $132.67, investors are keen to understand whether the stock is fairly valued. This analysis aims to delve into the valuation of AutoZone (AZO) and provide insights into its current market position.
AutoZone Inc is a leading seller of aftermarket automotive parts, tools, and accessories, primarily catering to do-it-yourself customers in the United States. The company has also expanded its commercial customer base domestically and has established a growing presence in Mexico and Brazil. With a market cap of $46.10 billion and a stock price of $2613.15, AutoZone's valuation is under scrutiny. The GF Value, estimated at $2670.52, suggests the stock is fairly valued. But what does this mean for potential investors?
Understanding the GF Value of AutoZone (AZO, Financial)
The GF Value is an exclusive metric that determines the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. When a stock's price aligns closely with the GF Value Line, it suggests that the stock is fairly valued, indicating that its future returns could closely mirror the company's business growth.
At its current price, AutoZone (AZO, Financial) appears to be fairly valued according to the GF Value. This assessment takes into account historical multiples, the company's past business growth, and analyst estimates of future business performance. A stock price significantly above the GF Value Line might indicate overvaluation and potential poor future returns, whereas a price below suggests undervaluation and possibly higher future returns. Therefore, the current valuation implies that AutoZone's stock may provide returns that are consistent with the company's growth trajectory.
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AutoZone's Financial Strength
Investing in companies with robust financial strength is crucial to mitigate the risk of permanent capital loss. AutoZone's fair financial strength is reflected in a cash-to-debt ratio of 0.09, which is lower than 82.78% of its peers in the Retail - Cyclical industry. This fair financial strength score of 5 out of 10 warrants attention from investors considering AutoZone's stock.
Profitability and Growth
Profitability is a key indicator of a company's investment potential. AutoZone has maintained profitability for the past decade, with a revenue of $17.50 billion and an operating margin of 19.9%, outperforming 93.74% of the industry. This consistent profitability, coupled with a strong profitability rank of 10 out of 10, underscores AutoZone's solid financial health.
When it comes to growth, AutoZone's 3-year average revenue growth rate surpasses 82.94% of its industry peers. Additionally, the company's 3-year average EBITDA growth rate of 21.2% ranks better than 72.82% of companies in the Retail - Cyclical industry, suggesting a strong potential for value creation for shareholders.
Evaluating ROIC vs. WACC
Comparing Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) provides insights into a company's profitability relative to the capital invested. AutoZone's ROIC of 29.13 is significantly higher than its WACC of 6.71, indicating the company's effectiveness in creating value for its shareholders.
Concluding Remarks on AutoZone's Valuation
In conclusion, AutoZone (AZO, Financial) is currently deemed to be fairly valued, with a solid financial condition and robust profitability. Its growth outpaces a majority of its competitors in the Retail - Cyclical industry. For a detailed exploration of AutoZone's financials, interested investors can review the company's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
