Recently, AutoZone Inc (AZO, Financial) experienced a daily stock price decline of 3.53%, yet it has seen a gain of 3.34% over the past three months. With an Earnings Per Share (EPS) of 142.02, investors and analysts are keen to determine: is AutoZone fairly valued? This article delves into the company's valuation, providing a thorough analysis for potential investors.
Company Overview
AutoZone operates as a leading retailer of aftermarket automotive parts in the United States, boasting over 6,300 stores. The company serves both do-it-yourself customers and commercial clients through its extensive store footprint and distribution network. AutoZone is renowned for its superior customer service, helping consumers diagnose vehicle problems, select the right replacement parts, and sometimes even assisting with installation. With additional operations in Mexico and Brazil, AutoZone's international presence includes over 850 stores.
Understanding GF Value
The GF Value is a proprietary measure designed to determine the intrinsic value of a stock. This metric is calculated based on historical trading multiples, a GuruFocus adjustment factor from past performance and estimates of future business performance. For AutoZone, the GF Value suggests the stock is fairly valued at its current price of $2820.83, with a market cap of $48.80 billion. This alignment suggests that the long-term return on AutoZone's stock should closely mirror the company's business growth rate.
Financial Strength and Risks
Investing in companies with robust financial health is crucial to minimizing the risk of capital loss. AutoZone's financial strength, however, is rated 4 out of 10 by GuruFocus, indicating concerns regarding its financial robustness. A critical factor here is the cash-to-debt ratio, which at 0.03 is lower than 93.5% of its industry peers. This suggests that AutoZone has a higher financial leverage, which could be a risk factor for investors.
Profitability and Growth
AutoZone has demonstrated strong profitability, with an operating margin of 20.6%, which is superior to 95.32% of companies in the Retail - Cyclical industry. The company has also shown impressive growth, with a 3-year average annual revenue growth rate of 20.3%. This growth is not only robust but also ranks well within the industry, suggesting that AutoZone is effectively expanding its market presence and operational scale.
Return on Invested Capital
Another crucial financial metric is the comparison between the Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC). AutoZone's ROIC is an impressive 30.62, significantly higher than its WACC of 6.51. This indicates that the company is generating substantial returns on the capital invested in its business, far exceeding its capital costs.
Conclusion
Overall, AutoZone (AZO, Financial) appears to be fairly valued according to the GF Value, balancing its market price with its intrinsic value. While the company's financial strength poses some risks due to high leverage, its strong profitability and growth prospects may compensate for these risks. Investors interested in AutoZone should consider both the potential returns and the financial stability of the company. For a deeper insight into AutoZone's financials, consider exploring its 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.
