7A
Valuation Multiples Analysis
AutoZone, Inc. (AZO) currently presents a nuanced valuation picture, trading at a significant premium to its own historical averages while simultaneously showing a discount relative to its industry peers. The company's P/E ratio stands at 28.2x, a notable 56.3% above its 5-year average of 18.1x, and its EV/EBITDA multiple of 19.5x also significantly exceeds its 5-year average of 13.1x. This indicates a substantial rerating of the stock over recent years, with investors now assigning a much higher multiple to its earnings and operational cash flow. The 'Expanding' valuation trend further reinforces this, suggesting increasing investor optimism and higher market expectations for AZO's future performance.
Despite trading at a premium to its historical self, AZO appears relatively attractive when benchmarked against its industry comparables. Its current P/E multiple of 28.2x is 10.6% below the peer median of 31.6x, and its EV/EBITDA of 19.5x is 8.2% below the peer median of 21.3x. This peer discount suggests that while the market has become more bullish on AZO historically, it still offers a valuation entry point that is more favorable than many of its direct competitors, potentially signaling that its superior growth, margins, or competitive position are not yet fully reflected in its current multiples relative to the sector.
The 'Expanding' valuation trend for AZO implies that market participants are increasingly willing to pay a higher multiple for the company's earnings and cash flows. This typically reflects strengthening investor confidence in the company's future growth prospects, profitability, and overall market position. Conversely, a contracting trend might suggest diminishing confidence. For AZO, the expanding multiples indicate that market expectations for its future performance have risen considerably, reflecting a perceived improvement in its fundamental outlook or a shift in sector sentiment.
Key Findings
- AutoZone (AZO) trades at a substantial premium to its own historical valuation, with its P/E ratio 56.3% above its 5-year average and EV/EBITDA significantly higher than its historical mean.
- Despite its historical premium, AZO currently trades at a discount across key multiples (P/E and EV/EBITDA) compared to its industry peer median, suggesting relative value within the sector.
- The 'Expanding' valuation trend for AZO signifies increasing investor optimism and higher market expectations regarding the company's future growth and profitability.
Company Valuation Highlights
AZO:
AutoZone, Inc. (AZO) trades at a significant premium to its own historical valuation, with a P/E of 28.2x (56.3% above its 5-year average of 18.1x) and an EV/EBITDA of 19.5x (well above its 5-year average of 13.1x). This 'Expanding' valuation trend indicates rising market expectations for its future performance. However, when compared to its peers, AZO appears to trade at a discount, with its P/E 10.6% below the peer median of 31.6x and EV/EBITDA 8.2% below the peer median of 21.3x. This suggests that while the stock has rerated upwards historically, it still offers relative value compared to its industry counterparts, potentially indicating that its strong fundamentals or market position are not yet fully priced in relative to the sector.
| Company | P/E | Hist Avg | Fwd P/E | PEG | P/B | EV/EBITDA | P/S | Position |
|---|---|---|---|---|---|---|---|---|
| AZO | 28.2x | 18.1x | 20.7x | 2.39x | N/A | 19.5x | 3.72x | Premium |
Historical Percentile Position
Where current multiples sit relative to full historical range (higher percentile = more expensive vs history)
| Company | P/E %ile | P/E Range | P/B %ile | P/B Range | EV/EBITDA %ile | P/S %ile |
|---|---|---|---|---|---|---|
| AZO | 91th | 11.7x - 28.2x | N/A | N/A | 91th | 91th |
Peer Valuation Comparison
How each company's valuation compares to its industry peers
AZO vs 10 Peers
DiscountP/E Ratio
28.2x
Peer Median: 31.6x
(-10.6%)
P/B Ratio
N/A
Peer Median: 3.73x
(-653.5%)
EV/EBITDA
19.5x
Peer Median: 21.3x
(-8.2%)
P/S Ratio
3.72x
Peer Median: 3.58x
(+4.0%)
View all 10 peers
| Peer | P/E | P/B | EV/EBITDA | P/S | Market Cap |
|---|---|---|---|---|---|
| AZO | 28.2x | N/A | 19.5x | 3.72x | - |
| ORLY | 31.5x | N/A | 22.6x | 4.49x | $79.9B |
| GM | 20.9x | 1.13x | 9.5x | 0.38x | $70.2B |
| HLT | 48.4x | N/A | 29.3x | 5.77x | $69.4B |
| ROST | 31.6x | 10.46x | 19.4x | 3.03x | $68.9B |
| F | N/A | 1.34x | 21.3x | 0.25x | $47.6B |
| RACE | 33.5x | 13.70x | 21.2x | 7.48x | $53.5B |
| CPNG | 166.7x | 7.50x | 52.2x | 1.01x | $34.8B |
| CPRT | 23.4x | 3.73x | 16.1x | 7.92x | $36.5B |
| MAR | 33.4x | N/A | 22.2x | 3.28x | $85.8B |
| TCOM | 7.3x | 1.42x | 6.3x | 3.88x | $241.2B |
| Peer Median | 31.6x | 3.73x | 21.3x | 3.58x | - |
7B
Enterprise Value Analysis
AutoZone, Inc. (AZO) presents an Enterprise Value (EV) of $82.51 billion. This valuation metric provides a holistic view of the company's worth, encompassing both its equity market capitalization and its net debt. For AZO, the EV significantly exceeds its market capitalization of $59.88 billion, primarily due to a substantial net debt position of $11.91 billion. This composition indicates that debt plays a material role in the overall funding structure of the company, and investors acquiring AZO would effectively be taking on this debt burden in addition to the equity value.
The enterprise value multiples for AZO suggest a premium valuation. The EV/EBITDA multiple stands at 19.5x, indicating that the market is valuing AZO at nearly 20 times its earnings before interest, taxes, depreciation, and amortization. This multiple is generally considered high, suggesting that investors are willing to pay a premium for AZO's operational profitability, potentially reflecting strong perceived business quality, stability, or growth prospects within the automotive aftermarket sector. Similarly, the EV/Sales multiple of 4.36x further reinforces this premium valuation, implying that the market values AZO at over four times its annual revenue, a robust multiple for a retail-oriented business.
These EV metrics collectively suggest that AZO is valued as a high-quality, stable company with strong cash flow generation. The elevated multiples imply that the market has high expectations for AZO's future performance and continues to assign a premium to its earnings and revenue streams. For investors, these multiples highlight that entry into AZO's stock comes at a significant cost relative to its current operational performance, requiring a belief in sustained strong growth or superior profitability to justify the current valuation.
Key Findings
- AutoZone's Enterprise Value of $82.51 billion is substantially higher than its $59.88 billion market capitalization, driven by a significant net debt component of $11.91 billion.
- The EV/EBITDA multiple of 19.5x suggests a premium valuation, indicating that investors are paying a high multiple for AZO's core operating earnings.
- The EV/Sales multiple of 4.36x reinforces the premium valuation, reflecting strong market confidence in the company's revenue generation capabilities and future outlook.
- The current valuation implies high market expectations for AZO's sustained performance and profitability.
Leverage Assessment
AutoZone's capital structure indicates a notable reliance on debt financing. With total debt at $12.18 billion and cash at $271.8 million, the net debt stands at $11.91 billion. This results in a Net Debt/EBITDA ratio of 2.82x, which is categorized as 'High' leverage. While a certain level of debt can be accretive to shareholder returns, a high leverage ratio like this suggests that the company's debt burden is nearly three times its annual operating earnings. For investors, this implies a higher financial risk profile compared to companies with lower leverage, as a substantial portion of the company's future cash flows will be allocated to servicing this debt. This could potentially limit financial flexibility for future investments, share buybacks, or dividend increases, especially in a rising interest rate environment or during economic downturns that might impact earnings. However, for a stable, mature business like AutoZone with consistent cash flows, this level of leverage might be considered manageable, provided earnings stability is maintained.
| Company | Market Cap | EV | Net Debt | EV/EBITDA | Hist Avg | EV/Sales | EV/FCF | Leverage |
|---|---|---|---|---|---|---|---|---|
| AZO | $59.88B | $82.51B | $11.91B | 19.5x | 13.1x | 4.36x | 46.1x | High |
Leverage Analysis
| Company | Net Debt/EBITDA | Hist Avg | Hist Range | Debt % of EV | Leverage Tier |
|---|---|---|---|---|---|
| AZO | 2.82x | 2.31x | 1.96x - 2.82x | 14.8% | High |
7C
DCF & Intrinsic Value Analysis
Our Discounted Cash Flow (DCF) analysis for AutoZone (AZO) reveals a significant potential for undervaluation, with both historical and analyst-driven models suggesting substantial upside from the current market price. This analysis incorporates a dynamic market risk premium, reflecting current credit spread conditions, and sector-specific terminal growth rates. The prevailing higher interest rate environment, characterized by a 10-year Treasury yield of 4.27%, means that future cash flows are discounted at a higher rate compared to the low-rate periods observed between 2015 and 2021. Despite this headwind, AZO's low beta and consistent free cash flow generation, combined with a robust share buyback program, appear to underpin strong intrinsic values.
A notable divergence exists between the Historical DCF and Analyst DCF methodologies. The Historical DCF, which projects future free cash flow based on the company's 10-year FCF CAGR, offers a conservative baseline. In contrast, the Analyst DCF, leveraging forward-looking analyst revenue estimates, suggests a much more optimistic growth trajectory. This disparity often indicates that market analysts anticipate a stronger future performance than what recent historical trends might imply, potentially due to specific company initiatives or favorable industry tailwinds. The consistent share buyback rate of 6.5% annually for AutoZone plays a crucial role in enhancing per-share intrinsic value across both models by steadily reducing the share count.
Key Findings
- **Significant Undervaluation Across Models:** Both the Historical DCF and Analyst DCF models indicate that AutoZone is significantly undervalued at its current market price, suggesting substantial upside potential for investors.
- **Divergence in Growth Expectations:** The large difference between the Historical DCF (+80.5%) and Analyst DCF (+207.8%) upside for AZO highlights a significant divergence in growth expectations. Analysts appear to be forecasting a much stronger future free cash flow generation than what the company's 10-year FCF CAGR suggests, potentially looking past recent headwinds (e.g., 5-year FCF CAGR of -4.6%).
- **Impact of Share Buybacks:** AutoZone's aggressive historical buyback rate of 6.5% per year significantly enhances its per-share intrinsic value in the DCF models, as fewer shares outstanding distribute the total company value more widely among remaining shareholders.
- **Market Skepticism vs. Fundamental Strength:** The considerable gap between AZO's current market price and its intrinsic value estimates suggests that the market may be underestimating the company's long-term FCF growth potential, its resilience in various economic cycles, or the accretive impact of its share repurchase program, despite a higher interest rate environment.
DCF Verdicts by Company
AZO:
{'verdict': 'Significantly Undervalued', 'analysis': "AutoZone (AZO) presents a compelling valuation case, with both DCF methodologies indicating it is significantly undervalued. The Historical DCF, based on a 10-year FCF CAGR of 5.2%, yields an intrinsic value of $6524.42, representing an impressive 80.5% upside from the current price of $3614.27. The Analyst DCF, which incorporates more forward-looking revenue estimates and a historical FCF margin, projects an even higher intrinsic value of $11125.37, implying a substantial 207.8% upside.\n\nThis considerable divergence between the two DCF outcomes, particularly the Analyst DCF's much higher valuation, suggests that the market may be overly fixated on recent challenges, such as the negative 5-year FCF CAGR of -4.6%, and underappreciating AutoZone's future growth prospects. Analysts likely foresee a return to stronger FCF growth, possibly driven by the aging vehicle fleet, continued demand for DIY auto parts, or effective cost management. The company's low beta of 0.35 contributes to a relatively moderate WACC of 5.26%, making its future cash flows less aggressively discounted despite the current higher interest rate environment (10Y Treasury at 4.27%). Furthermore, AZO's robust historical share buyback rate of 6.5% annually significantly boosts per-share values by reducing the share count over time. The substantial upside identified by both models, particularly the analyst-driven one, points to a potential mispricing by the market, which may not be fully incorporating the company's long-term earnings power and shareholder return policies."}
Risk-Free Rate (10Y Treasury):
4.27%
Market Risk Premium:
3.13%
BAA Spread:
1.63%
Terminal Growth Rate:
Varies by sector (2.0% - 3.5%)
Methodology Note:
- Market Risk Premium: Calculated dynamically based on credit spreads.
Formula:
ERP = 3.0% + (BAA Spread - 1.5%). When spreads are tight, ERP is lower; when spreads widen, ERP increases. - Terminal Growth Rate: Sector-based assumptions: Technology, Communication Services: 3.5% | Healthcare, Consumer Cyclical: 3.0% | Industrials, Financials, Consumer Defensive, Materials: 2.5% | Energy, Utilities, Real Estate: 2.0%
- Shares Outstanding: Adjusted for historical buyback trends when applicable.
| Company | Current Price | Historical DCF | Upside | Analyst DCF | Upside | Verdict |
|---|---|---|---|---|---|---|
| AZO | $3614.27 | $6524.42 | +80.5% | $11125.37 | +207.8% | Significantly Undervalued |
AZO – AutoZone, Inc.
WACC Calculation
| Risk-Free Rate (Rf) | 4.27% |
| Beta (β) | 0.35 |
| Market Risk Premium | 5.50% |
| Cost of Equity (Ke = Rf + β × MRP) | 5.38% |
| Cost of Debt (after-tax) | 4.66% |
| WACC | 5.26% |
Historical Free Cash Flow
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| FCF ($B) | $2.9B | $2.5B | $2.1B | $1.9B | $1.8B |
| FCF Margin (%) | 19.8% | 15.6% | 12.3% | 10.4% | 9.5% |
FCF CAGRs: 5Y: -4.6% | 10Y: 5.2% | Avg FCF Margin (5Y): 13.5%
DCF Valuation (Two Methods)
| Component | Historical Method (10Y CAGR projection) |
Analyst Method (Revenue × FCF Margin) |
|---|---|---|
| Growth Assumption | 5.2% (10Y CAGR) | Analyst Revenue Est. × 13.5% margin |
| PV of Projected FCF | $8.92B | $14.46B |
| Terminal Value | $104.94B | $169.08B |
| PV of Terminal Value | $81.21B | $130.85B |
| Enterprise Value | $90.14B | $145.31B |
| (-) Net Debt | $11.91B | $11.91B |
| Equity Value | $78.23B | $133.40B |
| Intrinsic Value per Share | $6524.42 | $11125.37 |
| vs Current Price ($3614.27) | +80.5% | +207.8% |
Sensitivity Analysis (Historical Method)
Intrinsic value per share varying WACC and Terminal Growth Rate
| WACC ↓ / TG → | 2.0% | 2.5% | 3.0% | 3.5% | 4.0% |
|---|---|---|---|---|---|
| 3.3% | $12601 | $20706 | $55831 | N/A | N/A |
| 4.3% | $6670 | $8629 | $12095 | $19895 | $53691 |
| 5.3% | $4334 | $5179 | $6391 | $8277 | $11614 |
| 6.3% | $3085 | $3545 | $4145 | $4958 | $6126 |
| 7.3% | $2308 | $2592 | $2943 | $3386 | $3964 |
Current price: $3614.27 | Highlighted row shows base case WACC (5.26%)
Verdict:
Significantly Undervalued
(Combined upside: +144.2%, DCF Confidence: Medium)
DCF Summary Comparison
| Company | Current Price | Historical DCF | Analyst DCF | Combined Upside | Verdict |
|---|---|---|---|---|---|
| AZO | $3614.27 | $6524.42 (+80.5%) | $11125.37 (+207.8%) | +144.2% | Significantly Undervalued |
7D
Analyst vs Market Valuation
AutoZone, Inc. (AZO) currently trades at $3614.27, with a strong analyst consensus price target of $4284.40, implying a substantial upside of +18.5%. This indicates a broadly positive outlook from the 21 analysts covering the company, with the prevailing sentiment being 'Buy'. While the current consensus target suggests significant potential, it is worth noting that the average target has seen a modest decline of 3.9% over the past year, evolving from $4289.64 a year ago to a more recent average of $4124.17 (prior to the current $4284.40 consensus). This suggests a slight tempering of expectations or recalibration of growth assumptions among the analyst community, even as the current implied upside remains robust.
Key Findings
- AutoZone (AZO) carries a significant implied upside of +18.5% based on the analyst consensus price target of $4284.40.
- Analyst price targets for AZO have experienced a modest downward trend over the last year, indicating a slight recalibration of sentiment or growth expectations.
- The P/E trajectory for AZO shows a notable contraction from a TTM P/E of 24.3x to a Forward P/E of 20.7x, suggesting strong anticipated earnings growth.
- With 21 analysts covering AZO and a consensus 'Buy' sentiment, there is a good level of analyst coverage and a generally positive outlook, despite some variability in individual price targets.
Price Target Trend Analysis
The trend in analyst price targets for AutoZone reveals a slight cooling of sentiment over the past year. While the current consensus target still offers a compelling +18.5% upside, the 3.9% decrease in the average target from last year ($4289.64) to a more recent average ($4124.17) indicates that analysts have, on average, lowered their expectations somewhat. This suggests a recalibration of growth forecasts or a more cautious stance, potentially due to evolving market conditions or company-specific factors. Investors should note this slight tempering of long-term sentiment, even as the near-term outlook remains positive.
P/E Trajectory Analysis
AutoZone's P/E trajectory, moving from a Trailing Twelve Months (TTM) P/E of 24.3x to a Forward P/E of 20.7x, represents a significant -14.8% contraction. This P/E compression is a strong indicator that analysts are forecasting substantial earnings per share (EPS) growth for the upcoming fiscal year (with Forward EPS 2027 estimated at $174.56). A lower forward P/E multiple relative to the trailing multiple implies that the market expects future earnings to grow at a rate that justifies a cheaper valuation on a forward basis. For investors, this suggests confidence in AutoZone's ability to expand its profitability, making its current valuation potentially more attractive when considering future earnings power. The wide target range for AZO, from $3550.00 (-1.8% downside) to $4800.00 (+32.8% upside), highlights a degree of divergence in analyst opinions regarding the company's ultimate valuation potential, even within a broadly positive consensus.
Analyst Price Targets
| Company | Current Price | Target Consensus | Target Low | Target High | Upside | Analysts | Sentiment |
|---|---|---|---|---|---|---|---|
| AZO | $3614.27 | $4284.40 | $3550.00 | $4800.00 | +18.5% | 21 | Buy |
Price Target Evolution
How analyst targets have changed over time - rising targets signal improving sentiment
| Company | Last Month Avg | Last Quarter Avg | Last Year Avg | Change (M vs Y) | Trend |
|---|---|---|---|---|---|
| AZO | $4124.17 (6) | $4202.33 (21) | $4289.64 (36) | -3.9% | Stable |
Forward Estimates & P/E Comparison
Comparing trailing (TTM) vs forward P/E reveals market expectations for earnings growth
| Company | Forward EPS | Forward Revenue | TTM P/E | Forward P/E | P/E Change | Estimate Year |
|---|---|---|---|---|---|---|
| AZO | $174.56 | $22.07B | 24.3x | 20.7x | -14.8% (Strong growth expected) | FY2027 |
Reading P/E Change: Negative change (TTM P/E > Forward P/E) suggests analysts expect earnings growth.
Positive change indicates earnings may decline. Large differences warrant investigation into the growth story.
7E
Valuation Summary & Investment Implications
AutoZone, Inc. (AZO) currently trades at $3614.27, with our multi-method valuation analysis suggesting a median implied value of $4644.09, representing a potential upside of 28.5%. The overall consensus from our models indicates that AZO appears undervalued at its current price. However, the valuation range for AZO is notably wide, spanning from $3473.90 to $6524.42, which signals a significant divergence among the various methodologies employed.
Delving into the individual methods, the Discounted Cash Flow (DCF) model presents the most optimistic outlook, implying a target price of $6524.42, an impressive 80.5% upside. Similarly, the Peer P/E multiple approach suggests a substantial upside of 52.4%, arriving at $5509.74. The EV/EBITDA (Peer) model and the Wall Street Analyst Target also indicate meaningful upside potential of 28.5% and 18.5%, respectively. In contrast, the Peer P/S multiple valuation stands out as the only method implying a slight downside of 3.9%, valuing the company at $3473.90, which is very close to its current trading price. This wide spread, particularly between the P/S model and the DCF/P/E models, highlights the differing perspectives on how to best value AZO's future earnings and growth prospects.
Despite this divergence, the majority of the valuation methods—including those focused on intrinsic value (DCF) and earnings power (P/E, EV/EBITDA)—point towards AutoZone being an attractive investment at its current valuation. The wide range, while indicating some level of uncertainty, does not detract from the predominant view that the stock offers a compelling entry point for investors seeking long-term value.
Key Takeaways
- AutoZone (AZO) appears undervalued, with a median implied upside of 28.5% based on a multi-method valuation approach.
- The valuation range for AZO is wide ($3473.90 to $6524.42), indicating significant divergence among valuation methods, particularly between the P/S model and the DCF/P/E models.
- Intrinsic valuation (DCF) and earnings-based multiples (P/E, EV/EBITDA) suggest substantial upside, with DCF being the most optimistic at +80.5%.
Investment Implications
For investors considering AutoZone, Inc. (AZO), the analysis suggests a compelling investment opportunity. The consensus from multiple valuation methods points to the stock being undervalued, with a median implied upside of 28.5%. While the wide valuation range indicates some uncertainty and differing views on the company's full potential, the strong signals from intrinsic valuation (DCF) and earnings-based multiples (P/E and EV/EBITDA) provide a robust argument for a higher fair value. The stock could be an attractive long-term holding for investors seeking exposure to a resilient sector with potential for capital appreciation, despite the minor cautionary note from the P/S multiple.
Comprehensive Valuation Summary
Aggregated implied values from multiple valuation methods: P/E, P/B, EV/EBITDA, P/S (peer-based), DCF, and Analyst Targets
| Company | Current Price | Valuation Range | Median Value | Median Upside | Methods | Consensus |
|---|---|---|---|---|---|---|
| AZO | $3614.27 | $3473.90 - $6524.42 | $4644.09 | +28.5% | 5 | Undervalued |
Valuation Details by Method
Implied values from each valuation methodology for individual companies
AZO – AutoZone, Inc.
Current: $3614.27
Undervalued
| Method | Implied Value | Upside/Downside | Basis |
|---|---|---|---|
| P/E (Peer) | $5509.74 | +52.4% | Peer median P/E (31.6x) × Forward EPS ($174.56) |
| EV/EBITDA (Peer) | $4644.09 | +28.5% | Peer median EV/EBITDA (21.3x) × EBITDA - Net Debt |
| P/S (Peer) | $3473.90 | -3.9% | Peer median P/S (3.58x) × Revenue per Share |
| DCF | $6524.42 | +80.5% | Revenue × FCF Margin projection |
| Analyst Target | $4284.40 | +18.5% | Consensus of 21 analysts |
| Median | $4644.09 | +28.5% | Based on 5 methods |
Most Undervalued
- AZO
Highest Analyst Upside
- AZO