AutoZone Inc (AZO)

Conclusion

AutoZone is a retailer and distributor of automotive replacement parts, maintenance products and accessories in the Americas. At 3251.27 USD on 9 November 2026, the shares give a market capitalisation of 52.3 billion USD and an enterprise value of 65.2 billion USD.

The verdict is overvalued, with a margin of safety of -24.7%. The fair value band runs from 1957.93 to 2936.89 USD with a midpoint of 2447.41 USD, and the price is above the top of that band. The DCF gives 2134.03 USD per share, and the fair value from historical multiples is 2760.80 USD. Today's P/E of 20.3 compares with a ten-year median of 18.7, and EV/EBITDA of 17.5 with a median of 14.4. Free cash flow per share is priced at 28.8 times against a median of 18.8. The reverse DCF implies growth of 11.3% a year, while revenue grew at 6.8% a year over five years and free cash flow per share fell at 3.3% a year over the same period.

What holds the case up is a return on invested capital of 28.6% against a WACC of 7.9%, revenue that grew in all ten of the last ten years, and a share count that fell at 5.9% a year over five years. What would break it is free cash flow per share shrinking over three and five years (-1.4% and -3.3%), net debt to EBITDA of 3.4 and a current ratio of 0.90.

Financial health

Financial strength is yellow, because all four measured ratios are assessed as neutral: none is clearly strong and none is clearly weak. The current ratio is 0.90, the quick ratio 0.11, net debt to EBITDA 3.4 and interest coverage 7.9. Debt to equity is not available because the company has negative shareholders' equity. The Altman Z-score of 2.57 falls in the grey zone, but the Altman model was designed for manufacturers, and AutoZone is a retailer. Insolvency risk: low, about 2.7% by the estimate of the Ohlson model over one to two years.

Earnings quality

Earnings quality is yellow: free cash flow conversion and the Piotroski score are assessed as neutral, while the share count reduction is assessed as good. Free cash flow conversion is 70.6% on a trailing basis and 80.5% over five years, and the accrual ratio is -3.3%. Stock-based compensation is 0.7% of revenue, and free cash flow after it is 1.68 billion USD. The share count fell at a five-year rate of -5.9% a year, which reflects buybacks. The Piotroski score is 6 of 9. The Beneish M-score is not available. Over the last eight quarters the company beat estimates three times and missed five times, with an average surprise of -1.1%. Estimates for the current year fell 3.5% over 90 days, and those for next year fell 2.4%, while next-year EPS growth is expected at 12.9%.

Profitability

Profitability is green, with all four measures assessed as good. Gross margin is 52.3% against a ten-year median of 52.7%, operating margin 18.3% against 19.1%, and net margin 12.7% against 13.7%. Operating margin has been stable, with a stability measure of 6.3%. Return on invested capital is 28.6% against a WACC of 7.9%, a given ROIC minus WACC value of 20.7 percentage points, and its five-year median is 41.1%. Return on equity is not meaningful, since equity is negative. The DuPont split shows a net margin of 12.7% and an asset turnover of 0.94, so returns come from margins and capital turnover rather than leverage.

Growth

Growth is green: three of four growth signals are assessed as good, and revenue growth is neutral. Revenue compounded at 5.2% over three years, 6.8% over five and 6.7% over ten. Earnings per share compounded at 4.9% over three years, 9.9% over five and 14.1% over ten. Free cash flow per share fell at 1.4% a year over three years and 3.3% over five, while it grew at 11.7% over ten. Revenue grew in all ten of the last ten years. Consensus expects next-year EPS growth of 12.9%, which is above the recent three-year pace.

Valuation

Valuation is red, because the verdict is overvalued with a margin of safety of -24.7%. The P/E of 20.3 is a premium of 8.8% to its ten-year median of 18.7. EV/EBITDA of 17.5 is a premium of 21.6% to a median of 14.4, and price to free cash flow of 28.8 is a premium of 53.2% to a median of 18.8. Price to sales of 2.57 sits at a discount of 2.7% to its median of 2.64. The DCF gives 2134.03 USD per share, using a discount rate of 8.9%, first-stage growth of 6.8% and terminal growth of 2.5%. The fair value band is 1957.93 to 2936.89 USD, with a midpoint of 2447.41 USD. The reverse DCF implies growth of 11.3%, against five-year revenue growth of 6.8%. The company pays no dividend. These fair values are order-of-magnitude estimates built on fixed assumptions, not price targets.

Risks

The weakest numbers are the current ratio of 0.90 and the quick ratio of 0.11, which leave little cushion for short-term obligations, and net debt to EBITDA of 3.4, which would limit flexibility if earnings fell. Falling free cash flow per share, with declines of 1.4% and 3.3% over three and five years, would weaken the buyback-driven share count reduction. Estimate cuts of 3.5% for the current year and 2.4% for next year would support a lower multiple. Debt to equity, return on equity, the Beneish M-score and price to book are not available. This analysis has no debt maturity schedule and no revenue by segment, so it cannot judge refinancing timing or which parts of the business drive growth.