Company Profile (excerpt from Reuters): AutoZone, Inc., incorporated on November 25, 1991, is a retailer and distributor of automotive replacement parts and accessories in the United States. The Company operates through the Auto Parts Locations segment. The Auto Parts Locations segment is a retailer and distributor of automotive parts and accessories. As of February 10, 2018, the Company operated through 6,088 locations in the United States, Puerto Rico, Mexico and Brazil. The Company’s stores carry product lines for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products. The Company’s domestic stores also have a commercial sales program, which provides commercial credit and delivery of parts and other products to local, regional and national repair garages, dealers, service stations and public sector accounts. The Company’s other operating segments include ALLDATA, which produces, sells and maintains diagnostic and repair information software used in the automotive repair industry; E-commerce, which includes direct sales to customers through www.autozone.com.
Downloadable PDF version of this valuation:
ModernGraham Valuation of AZO – January 2019
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $21,130,360,376 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 0.72 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Pass | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 210.15% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 94.99 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 11.15 | Fail | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 0.72 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | -40.50 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $8.83 |
| MG Growth Estimate | 15.00% |
| MG Value | $339.80 |
| Opinion | Overvalued |
| MG Grade | F |
| MG Value based on 3% Growth | $127.98 |
| MG Value based on 0% Growth | $75.02 |
| Market Implied Growth Rate | 43.24% |
| Current Price | $838.34 |
| % of Intrinsic Value | 246.71% |
AutoZone, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $4.13 in 2014 to an estimated $8.83 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 43.24% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into AutoZone, Inc. revealed the company was trading above its Graham Number of $151.94. The company pays a dividend of $5.68 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 94.99, which was above the industry average of 20.05. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-56.29.
AutoZone, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$56.29 |
| Graham Number | $151.94 |
| PEmg | 94.99 |
| Current Ratio | 0.72 |
| PB Ratio | 11.15 |
| Current Dividend | $5.68 |
| Dividend Yield | 0.68% |
| Number of Consecutive Years of Dividend Growth | 6 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/1/2018 |
| Total Current Assets | $478,342,000 |
| Total Current Liabilities | $664,357,000 |
| Long-Term Debt | $7,533,228,000 |
| Total Assets | $18,662,119,000 |
| Intangible Assets | $0 |
| Total Liabilities | $8,264,721,000 |
| Shares Outstanding (Diluted Average) | 138,323,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $13.64 |
| Dec2017 | $6.35 |
| Dec2016 | $7.52 |
| Dec2015 | $5.51 |
| Dec2014 | $5.21 |
| Dec2013 | $2.78 |
| Dec2012 | $4.32 |
| Dec2011 | $4.87 |
| Dec2010 | $2.07 |
| Dec2009 | $1.93 |
| Dec2008 | $5.17 |
| Dec2007 | $4.38 |
| Dec2006 | $3.42 |
| Dec2005 | $4.05 |
| Dec2004 | $2.92 |
| Dec2003 | $3.73 |
| Dec2002 | $2.23 |
| Dec2001 | $3.02 |
| Dec2000 | $2.53 |
| Dec1999 | $2.03 |
| Dec1998 | $1.84 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $8.83 |
| Dec2017 | $6.10 |
| Dec2016 | $5.68 |
| Dec2015 | $4.68 |
| Dec2014 | $4.13 |
| Dec2013 | $3.46 |
| Dec2012 | $3.75 |
| Dec2011 | $3.54 |
| Dec2010 | $3.05 |
| Dec2009 | $3.62 |
| Dec2008 | $4.31 |
| Dec2007 | $3.82 |
| Dec2006 | $3.45 |
| Dec2005 | $3.37 |
| Dec2004 | $2.99 |
| Dec2003 | $2.91 |
| Dec2002 | $2.45 |
Recommended Reading:
Other ModernGraham posts about the company
| AutoZone Inc Valuation – February 2018 $AZO | |
| Autozone Inc Valuation – June 2016 $AZO | |
| AutoZone Inc. Annual Valuation – 2015 $AZO |
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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