AUTOZONE INC (AZO): what the price assumes

In the published model solve dated 2026-Q2, anchored at $2961.96, AUTOZONE INC (AZO) is priced for -3.9% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-25.

Generated: 2026-08-30 · Source: https://boothcheck.com/report/AZO

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 7% cost of capital with 4% terminal growth over a 5-year stage (computed at the 7% minimum rate; the CAPM rate 7% sits below it).

How unusual the bet is: within-range (limited comparison data)

Valuation X-Ray

The price is justified by relative-multiple; earnings-power land below the price.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Relative Families that call it expensive: Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.2%); the inversion above states its own rate.

Per-Model Detail (n=5)

Economic-Unit Decomposition (Sum Of The Parts)

Only one reportable economic unit is present in the current topology source. Consolidated operating lenses remain available, but there is no multi-unit decomposition.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

• Nearly half of what AutoZone sells is a part that already broke, which makes the biggest slice of its revenue something customers buy on availability and urgency rather than on price.
• The cost side is where the pressure shows: tariff-driven inventory costs landed as a non-cash inventory-accounting charge that took 77 basis points off third-quarter gross margin, and management flagged roughly 30 million dollars more of the same in the fourth quarter.
• The fiscal year closes in August, so the fourth-quarter report is the next scheduled read on whether commercial momentum holds while the store base keeps expanding from the 133 mega hub stores the company ended fiscal 2025 with.

Bull Case

Half the revenue line is failure. Not a metaphor: the largest of the three merchandise groups, at 49% of sales, is parts that stopped working. A water pump does not get comparison-shopped. It gets bought within the hour, from whoever has one, by someone whose car is currently in a driveway going nowhere. That single fact explains why this company's economics look nothing like general retail, and why the methods that read it as a retailer keep landing somewhere else.

Availability is therefore the product, and availability is expensive. AutoZone answers it with a tiered inventory network: ordinary stores backed by hubs, hubs backed by mega hubs carrying assortments deep enough to cover the long tail of parts nobody stocks locally. The fiscal 2025 filing counts 133 mega hub stores, an increase of 24 since the end of fiscal 2024, plus eight more in Mexico and 53 international hub stores. Each one is a bet that same-day supply of an obscure part wins business that price never would. The compounding effect is visible in the top line: the 10-K states We have increased annual revenues in the past five fiscal years from $12.6 billion in fiscal 2020 to $18.9 billion in fiscal 2025, with a compounded annual growth rate of approximately eight percent.

The newer part of the story is the professional shop. Domestic commercial sales grew 10.4% in the third quarter of fiscal 2026, with both national accounts and independent repair shops posting double-digit gains. That matters more than the headline growth rate because commercial is the segment where the hub network converts directly into revenue. A repair shop with a car on the lift and a customer in the waiting room is buying delivery speed, and the operator with the deepest nearby assortment wins that order structurally rather than promotionally.

Then there is what the shareholder actually receives, which is not the same thing as what the income statement reports. The share count has fallen about 4.7% a year over the four years through early May 2026. Compounded, that means a holder's claim on the same operating profit rises meaningfully every year without the business growing at all. The mechanism is old and relentless: the 10-K notes that Since the inception of the repurchase program in 1998, the Board has authorized $40.7 billion in share repurchases, against a market value near 49.8 billion dollars today. Fiscal 2025 alone retired 0.4 million shares.

Compare that to the neighbours. ORLY, the closest direct competitor, runs a 19.6% operating margin on 18.2 billion of trailing revenue growing 7.9%, which is roughly the same shape of business executed roughly as well. AAP sits at a 1.8% operating margin with revenue down 3.1%. The category has split into operators who solved parts availability and operators who did not, and the split is wide enough that treating auto parts retail as one sector misses the whole point. AutoZone's trailing 18% operating margin puts it firmly on the working side of that line.

Bears are right that the multiple leaves little slack, and that point stands on its own. What it understates is the direction of the per-share arithmetic: with the denominator shrinking at this pace, flat operating profit is not a flat outcome for the person holding the stock.

Bear Case

Tariffs are the variable with the most leverage here, and the company says so itself. The fiscal 2025 risk factors state that new or increased tariffs, inflation, rising interest rates and disruption to the global supply chain have negatively impacted costs and inventory availability and may continue to have a negative impact on future results and profitability. That is not boilerplate this year. Third-quarter gross margin came in at 52.2%, down 57 basis points, of which 77 basis points was a non-cash inventory-accounting charge, and management guided to roughly 30 million dollars more of it in the fourth quarter, describing the input-cost picture as fluid. A parts distributor with a heavily imported supply base does not get to opt out of trade policy.

Rates are the second lever, and they bear directly on the mechanism the bull case rests on. The buyback is not funded by surplus cash; it is funded by debt, continuously. The 10-K reports Average borrowings for fiscal 2025 were $9.0 billion, compared with $8.7 billion for fiscal 2024. Weighted average borrowing rates were 4.48% and 4.39% for fiscal 2025 and 2024, respectively, and the cost of that stack has been climbing: Interest expense, net for fiscal 2025 was $475.8 million compared with $451.6 million during fiscal 2024, against 306.4 million dollars two years earlier. Retiring stock with borrowed money works while the earnings yield on the shares exceeds the after-tax cost of the borrowing. Trailing earnings measured against today's price leave that yield only fractionally above the average borrowing rate the filing reports. The gap has not closed, but it is thin enough that a couple of hundred basis points on the curve would turn the whole exercise into a coin flip rather than an engine.

The headroom is also finite in a literal sense. As of the fiscal 2025 year end the company reported 632.3 million dollars remaining under the board's existing authorization, having spent 38.5 billion of the 40.7 billion authorized since 1998. The board has re-upped many times before and can again. But the buyback is a discretionary policy renewed by a board, not a contractual obligation, and a policy that consumes essentially all free cash flow is the first thing to flex if costs stay elevated.

What today's price actually assumes is modest, and that is exactly what makes the multiple the fragile part. At roughly 19 times company-wide operating income, the market is not demanding acceleration. It is paying for the current profit stream to persist. The methods that price a persistent cash stream without any growth attached land at a small fraction of today's price, and the ones that reach it do so through peer multiples, which are the most reflexive of the available lenses: they hold because comparable companies trade there, and they stop holding the moment comparable companies do not. If sentiment on the category resets, nothing in the trailing numbers catches the price on the way down.

Competition is the reason a reset is plausible. The 10-K acknowledges rivals with greater sourcing capabilities allowing them to sell merchandise at lower prices, and warns plainly that If we cannot profitably increase our market share in the commercial auto parts business, our sales growth may be limited. ORLY is executing the same commercial playbook at a 19.6% operating margin with 7.9% revenue growth, which means the incremental professional customer is being fought over rather than discovered. Meanwhile GPC, at a 0.24% profit margin on 24.7 billion of revenue, is a reminder that scale in this industry guarantees nothing.

Finally, the balance sheet has no cushion by design. Equity is negative: repurchased shares are retired straight into a retained deficit, so book value provides no floor whatsoever. Roughly 8.0 billion dollars of accounts payable funds a large share of the inventory sitting on those shelves, against total current liabilities near 9.5 billion. That structure is efficient and it is also tight. Supplier terms are a form of financing, and financing terms are the first thing that moves when the cost environment turns.

Valuation

Start with what the price is not asking for. At $2957.08 the market pays roughly 19 times company-wide operating income, and inverting that multiple produces an embedded assumption of operating profit declining about 1.7% a year over the next five years. The bar is low. This is not a stock priced for a growth story; it is a stock priced for a machine that keeps running. The read is sensitive to the discount rate used to get there, which is 7% here with 4% terminal growth: each additional percentage point of cost of capital moves the implied pace by roughly 7.5 points, so the precise figure matters less than the direction, which is that the price does not require the business to get better.

The methods disagree about whether that is enough. Peer multiples land nearest, with today's price sitting about 16% above where that family of method centers. The earnings-power methods land at a small fraction of the price, and the reason is mechanical rather than mysterious: they capitalize roughly 1.63 billion dollars of trailing free cash flow at a 9.3% required return and assume no growth ever, which values the store base as it stands today, with the count frozen and the share count frozen with it. Neither has been frozen. Of the cash-flow approaches, the one that gets closest only gets there because it holds the exit EV/EBITDA flat at today's level, unchanged, all the way to the final year, which is less a valuation than a statement that the multiple survives.

So the load-bearing assumption is the multiple itself, not the operating trajectory. That is worth saying plainly, because it inverts the usual reading. A stock priced at 19 times operating income with a modest embedded requirement looks conservative next to a high-growth name priced for heroics. What it is instead is a bet that the market keeps assigning premium multiples to the strongest operator in a bifurcated category.

The cohort supports the premium on operating grounds. AutoZone's trailing operating margin runs 18%, against ORLY at 19.6% on 18.2 billion of revenue growing 7.9%, and AAP at 1.8% with revenue down 3.1%. Two operators have solved the parts-availability problem, one has not, and the market is pricing that distinction rather than the sector. Revenue growth of approximately eight percent compounded across the five fiscal years to 2025 is what the premium was earned on.

Solvency is where the bet gets its shape. On the funded-debt build-up, net debt runs about 9.2 billion dollars, near 2.8 times operating profit, and counting operating lease obligations the figure lands closer to 12.8 billion. Interest is not separately broken out in the most recent numbers, but the fiscal 2025 filing puts net interest expense at 475.8 million dollars, comfortably covered several times over by operating profit at its current level. What that leverage buys is the share-count trajectory: down about 4.7% a year over the four years through early May 2026, which is the clearest evidence available that the cash is going where management says it goes.

The company's own long-term revenue record and the current cost pressure point in opposite directions, and the price sides with the record. That is the choice on offer at today's level.

Catalysts

Third-quarter fiscal 2026 results landed on May 26, 2026, and the market did not like them despite the earnings beat. Net sales rose 8.4% to $4.8 billion for the twelve weeks ended May 9, 2026, total same-store sales grew 3.9% with domestic stores up 4.1%, and operating profit rose 6.6% to 923.8 million dollars. Diluted earnings per share came in at $38.07 against a Q3 fiscal 2026 consensus estimate of 36.17 dollars a share. The shares fell about 9% on the day.

The reaction was about the cost of goods rather than the earnings line. Gross profit as a percentage of sales was 52.2%, down 57 basis points, driven by a 77 basis point non-cash inventory-accounting charge tied to rising replacement costs; excluding it, the ratio expanded. Management flagged roughly 30 million dollars of additional charge in the fourth quarter and said pricing would be managed with suppliers accordingly, calling the situation fluid. Two readings are available and both are defensible: an accounting artifact that reverses, or the leading edge of tariff costs the company will eventually have to pass through or absorb.

Underneath that, expansion continued. The company opened 82 stores globally in the quarter and reiterated a long-term target of 300 mega hub locations, against the 133 domestic mega hubs it ended fiscal 2025 with. The fiscal year ends in August, making the fourth-quarter report the next scheduled test of whether commercial momentum and store growth hold while input costs are still moving.

Peer Cohorts (Per Segment, With Filing Citations)

AutoZone (consolidated) (reported)

• ORLY (O Reilly Automotive Inc)
• FY2025 10-K: …parts are the only material source of revenue for the Company. The products sold by the Company, across all geographic areas, have similar economic characteristics, are sourced from the Company's suppliers in a similar manner, and are available for sale to all of the Company's customers through the Company's stores.…
• FY2025 10-K: …Policies" to the Consolidated Financial Statements of the annual report on Form 10-K for the year ended December 31, 2017, for more information. (d) Following the enactment of the U.S. Tax Cuts and Jobs Act in December of 2017, the Company revalued its deferred income tax liabilities, which resulted in a one-time…
• AAP (ADVANCE AUTO PARTS, INC.)
• FY2025 10-K: …the Company now operates under the single operating segment of "Advance Auto Parts/Carquest". See Note 18. Segment Reporting and Note 3. Restructuring, included herein for additional information on the Company's segment and restructuring activities. Accounting Period The Company's fiscal year ends on the Saturday…
• FY2025 10-K: 021 Credit Agreement, which was terminated on August 12, 2025, and replaced by the ABL facility, generally prohibited open market share repurchases. Share repurchases are generally permitted under the Company's ABL facility, however, under certain circumstances, the Company's ability to repurchase shares may be…
• GPC (GENUINE PARTS CO)
• FY2025 10-K: …Automotive", would include our North America Automotive and International Automotive segments, and "Global Industrial" would include our Industrial Segment. The transaction is intended to qualify as a tax-free transaction for U.S. federal income tax purposes for the Company's shareholders. The separation is targeted…
• FY2025 10-K: …by mutual consent. COMPETITION Our Global Automotive and Industrial businesses operate in highly competitive markets, with a wide range of national, regional and local businesses. In our Automotive segments, competition comes from specialty parts chains, automobile manufacturers (including those selling parts for…
• LOW (LOWE’S COMPANIES, INC.)
• FY2025 10-K: …shareholders' deficit. 4 In November 2024, the Company entered into an Accelerated Share Repurchase (ASR) agreement with a third-party financial institution to repurchase the Company's common stock. At inception, pursuant to the ASR agreement, the Company paid $400 million to the financial institution and received an…
• FY2025 10-K: …liabilities and shareholders' deficit $ 43,102 $ 41,795 See accompanying notes to consolidated financial statements. 39 Table of Contents Lowe's Companies, Inc. Consolidated Statements of Shareholders' Deficit (In millions, except per share data) Common Stock Capital in Excess of Par Value Accumulated Deficit…
• TSCO (TRACTOR SUPPLY CO /DE/)
• FY2025 10-K: …provide additional distribution capacity. While the Company believes its properties are suitable and adequate for its current business operations, it remains focused on new store growth in many existing and new markets and regularly evaluates its portfolio to determine if new or different properties would be…
• FY2025 10-K: …of scale from increased volume of purchases, adjusting retail prices, and selectively buying from the most competitive vendors without sacrificing quality. 39 Table of Contents Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Reports of Ernst & Young LLP ,…
• SHW (THE SHERWIN-WILLIAMS COMPANY)
• FY2025 10-K: …share of the allocation base. The significant expense categories and amounts align with the segment-level information that is regularly provided to the CODM and include intersegment expenses within the amounts shown. Identifiable assets were those directly identified with each Reportable Segment. 94 Table of Contents…
• FY2025 10-K: …financial statements for the years ended December 31, 2025 and 2024. For comparisons of the years ended December 31, 2024 and 2023, see Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31,…
• SBH (SALLY BEAUTY HOLDINGS, INC.)
• FY2025 10-K: …period. See Note 10 in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report for additional information on legal proceedings. ITEM 4. MINE SAF ETY DISCLOSURES Not applicable - 28 - PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STO CKHOLDER MATTERS AND ISSUER…
• FY2025 10-K: …us-gaap:ProductConcentrationRiskMember sbh:StylingToolsAndSuppliesMember sbh:BeautySystemsGroupMember 2022-10-01 2023-09-30 0001368458 sbh:OmnibusPlansMember 2021-09-30 0001368458 us-gaap:SalesRevenueNetMember us-gaap:ProductConcentrationRiskMember sbh:SallyMember sbh:HairCareMember 2023-10-01 2024-09-30 0001368458…
• BBWI (BATH & BODY WORKS, INC.)
• FY2025 10-K: …false 2024 FY 0000701985 P3Y0M0D one one iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure bbwi:segment 0000701985 2024-02-04 2025-02-01 0000701985 2024-08-03 0000701985 2025-03-07 0000701985 2023-01-29 2024-02-03 0000701985 2022-01-30 2023-01-28 0000701985 2025-02-01 0000701985 2024-02-03 0000701985…
• FY2025 10-K: …on Consolidated Financial Statements Consolidated Statements of Income Consolidated Statements of Comprehensive Income Consolidated Balance Sheets Consolidated Statements of Total Equity (Deficit) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (2) Financial Statement Schedules…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.