AutoZone

AutoZone announced their earnings today and the stock is down a little bit. AutoZone probably needs no introduction. They are a retailer. They sell automotive parts. And in general, they've been very successful. I'll show you how the stock is really rewarded investors. They've really managed their balance sheet. They've managed their shares outstanding quite well by having really good buybacks. But t I wanted to take a look at AutoZone and really look at the intrinsic value based on fundamentals. I'm also going to look at how they compare it to the actual automotive companies It'll be interesting to see where the market caps land and what kind of valuations those stocks have as well. So let's take a look at AutoZone. We'll start with their financials in their earnings report and see what they reported. The earnings that were released today look okay. They're not fantastic. They're not incredible because the company is not growing very quickly. Over the last 52 weeks, the company has only grown by 2. 4%, w And t Over the last five years, it's just a really, really good stock price or stock performer. But the revenue hasn't really expanded very well. A couple years back when car prices really peaked, t It was just expensive to get a new car. The company has been buying back shares, w But as I'll show a little later, they do carry quite a bit of debt. So they really know how to engineer a good stock price, but their balance sheet is a little risky. I'll show that later. So overall, their income statement, not I t And their cash flow came in a little lower than the previous year. That's important. So t It's not worrisome. Just keep in mind, they're buying back debt, excuse me, buying back shares w In my book, that's not a good idea. I see why they're doing it. They want their stock price to continue to go up. Great. Good job. You just engineered a better stock price. But I'd prefer to have a healt Let's take a look at fundamentals now. The market cap of AutoZone is $67 billion, revenue of $18. 9 billion. Net income, $2. 56 billion. So they've been profitable consistently. Their PE ratio, for a slow grower, I would mention, t You're growing 2. 4% top line. You should really be priced with a PE of 18 or lower. I see a lot of stocks in their category being priced with a 12 PE. Analysts really I can see why. In the past year, it's up 31%. In the past five years, it's 245%. So it's easy for analysts to really agree with this company, Look at t Just fantastic. And they really have engineered a nice stock chart. Congratulations to the management team. That's their job, is to make the business more valuable. As we look at the business, they had If you recall, the automotive used car market became really expensive. So it became a good idea just to buy replacement parts for your ve I t So that's what's going on with the top line growth. To me, top line growth is really important. T Do they have pricing power? Is there more competition? All those t And a growth rate of 2. 43% really shows that they don't have a strong mode. They don't have an ability to continue to grow. So that is a yellow flag. Free cash flow ended up being a little lower than previous year, and I took it from their earnings announcement. I'll use that figure in my valuation. The gross margins are fine. For a retailer, t It's much better than the automotive industry, by the way. The margins are much lower for that business. Their profit margins are good. And the free cash flow margin, it's also good. These n 21 analysts cover this stock, and most of them There'some price targets as But there are a few analysts that believe the stock is priced too Their stock targets are $3,500. Overall, on average, the stock is discounted by 8%. The stock is down 2. 21% after they announced earnings. So maybe the market's getting their head around that slow growth and maybe revisiting what they t When we look at their forecast, they just completed they reported the year that ended August 31st, and we're on to the fiscal year 2026. They're expecting to grow 6. 63%, then 6. 6%, and then 7%. Those are decent growth rates, but they're not setting any records. There'some businesses that are growing far better. I t And their profits are going to expand some, although t So it'll be interesting to see if they could actually operate based on what I t So I'll take the earnings per share n Three famous investors own AutoZone, one of them being one of my favorite investors, Pat Dorsey. He owns quite a bit of it, and it's a winner for He has reduced In fact, Lee Ansley really owns very little of it, just a little over 1. 7 million, and that person reduced their position by 50%. T I completed a valuation for AutoZone, and here's what I've come up with. I t Each share, if I look at the value of the company based on their future free cash flows, as well as looking at the future profits, I t So it's 30% too The free cash flows is where we have the biggest issue, and the reason for it is their cash flows aren't great, and they're not growing. They actually contracted. If you look at the previous year to the year they just completed. So I took their trading 12 months, and I'm growing cash flows by 5%. It's not a given that they're going to keep growing, by the way, because there are some economic headwinds, and we'll see how the EV market, which has fewer parts, and as cars make it into service for more and more cons The company has a little bit of cash, and it does carry some debt, $8. 8 billion of debt. The company overall equity value, when I look at the net present value of free cash flows in the future, add cash, take away debt, I get to $38. 8 billion. The market cap is much So I'm actually showing that the stock is 42% price too So t I t But it's become a retail favorite that maybe the fundamentals are going to begin to wake people up. Today's announcement of their earnings and the stock trading down maybe shows a sign of what's to come. Also, super investors are selling t In s T If it was, I would be selling it from my portfolio. So that's my evaluation of AutoZone. It's been really fun and satisfying to have a channel for a couple of years. I've met a lot of great investors and together we've really grown. And I wanted to offer you the opportunity to become a member of the channel. It'll give you more access, more access to valuations, research, more access to more videos, the tools that I use, as well as being more connected with me as well as other members of there's four different levels. Take a look and see if one of the levels is somet I t