AutoZone: Steering Toward Future Growth.

AutoZone is a leading force in the automotive aftermarket, built around a dense store network, deep parts availability, and a business model designed to serve both do-it-yourself consumers and professional repair shops. From its extensive hub and mega hub logistics system to its high-margin private label brands like Duralast, AutoZone combines operational discipline with scale driven advantages in a largely non discretionary industry. As the company continues to expand domestically and internationally while strengthening its commercial business, AutoZone has positioned itself as a consistent compounder in a mature but resilient market. The question remains: Does this automotive aftermarket leader deserve a place in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in AutoZone at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of AutoZone, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

AutoZone is the leading retailer and distributor of automotive replacement parts and accessories in the Americas. Founded in 1979 under the name Auto Shack, the company has grown from a single-store operation into a multinational business with more than 7.600 stores across the United States, Mexico, and Brazil, headquartered in Memphis, Tennessee. AutoZone focuses exclusively on parts and product sales and does not offer repair or installation services. Its stores carry a broad assortment of new and remanufactured hard parts, maintenance items, accessories, and selected non-automotive products for cars, SUVs, vans, and light-duty trucks. The company serves two primary customer groups. The Do-It-Yourself customer consists of individuals who maintain and repair their own vehicles, while the Do-It-For-Me or commercial customer includes independent repair shops, service centers, dealerships, fleet owners, and other professional accounts. AutoZone’s operating model is built around high-touch, service-oriented retail, with an emphasis on ensuring that the right part is available when needed and delivered quickly. This philosophy is reinforced by the company’s internal “What It Takes To Do The Job Right” culture, which prioritizes solving the customer’s problem rather than simply completing a transaction. AutoZone’s store network is supported by a sophisticated tiered distribution system that includes standard stores, hub stores, and mega hub stores. A typical store carries roughly 20.000 to 25.000 unique SKUs, while hub stores expand that assortment to as many as 50.000 SKUs and mega hub stores carry up to 110.000 SKUs. This structure allows most stores to access a much broader inventory on the same day, enabling rapid fulfillment for both retail and commercial customers. For professional repair shops in particular, this ability to reduce delivery times from days to minutes is a critical differentiator. Demand for AutoZone’s products is driven by the essential nature of vehicle maintenance. For most consumers and businesses, cars and light trucks are necessary for daily mobility, and maintenance and repairs cannot be deferred indefinitely. As a result, AutoZone’s revenue is relatively resilient across economic cycles, supported by an aging vehicle fleet and the ongoing need for replacement parts. AutoZone’s competitive moat is built on scale, logistics, and operational execution rather than price alone. The automotive aftermarket has consolidated significantly over the past two decades, effectively evolving into a duopoly dominated by AutoZone and O’Reilly Automotive. While other players remain present, many have struggled to match the operational efficiency, service levels, and inventory availability of the market leaders. AutoZone’s dense store footprint creates local market coverage that is difficult to replicate, allowing it to serve customers faster and more reliably than smaller or less integrated competitors. A key pillar of this advantage is the company’s logistics infrastructure. The combination of standard stores, hub stores, and mega hub stores enables AutoZone to carry a vast and locally accessible parts assortment. This capability is especially important in the commercial segment, where repair shops depend on immediate access to parts to minimize vehicle downtime. Once a shop integrates AutoZone into its daily workflow and relies on its delivery reliability, switching to a less capable supplier becomes costly and risky. Brand strength further reinforces AutoZone’s position. The company’s private-label products, particularly the Duralast brand, have built strong recognition and trust among both DIY and professional customers. These brands support higher margins, improve inventory control, and deepen customer loyalty while differentiating AutoZone from competitors that rely more heavily on third-party manufacturers. The commercial sales program adds another layer of defensibility. By offering commercial credit, dedicated sales teams, rapid delivery, and integrated online ordering, AutoZone embeds itself deeply into the operations of repair shops and fleet operators. These relationships increase switching costs and strengthen long-term customer retention. Combined with a strong service culture, extensive employee training, and performance-based incentives, AutoZone has created an execution-driven advantage that has proven difficult for competitors to replicate.

Management

Phil Daniele serves as the CEO of AutoZone, a role he assumed in January 2024 after more than three decades with the company. He joined AutoZone in 1993 as a Manager in Training and has advanced steadily through the organization, making his career a clear example of AutoZone’s long-standing emphasis on internal development, operational discipline, and cultural continuity. Over the years, Phil Daniele has held a wide range of senior leadership positions, most notably serving as Executive Vice President overseeing merchandising, marketing, and supply chain, roles that placed him at the center of AutoZone’s core operating engine. This experience has given Phil Daniele a deep and practical understanding of AutoZone’s store operations, logistics network, inventory strategy, and customer service model. Unlike externally hired executives who must learn the business from the outside in, he has spent decades inside the system, working closely with store teams, distribution centers, and senior leadership. As a result, his leadership approach is highly grounded in execution, with a clear focus on consistency, reliability, and problem solving at the store level. In his early tenure, he has been explicit that AutoZone cannot rely on past success alone. He has emphasized the importance of flawless execution across thousands of stores, meeting disciplined store opening targets, expanding commercial sales, and continuing to deliver high levels of customer service in an increasingly demanding environment. His messaging reflects a clear understanding that AutoZone’s competitive advantage is earned daily through operational precision rather than strategic reinvention. A central theme in Phil Daniele’s leadership has been continuity and team strength. He has repeatedly highlighted the depth of AutoZone’s management, noting that the company’s senior leadership team averages more than eighteen years of experience with the business. This stability supports consistent decision making, long-term thinking, and cultural alignment across the organization. Former CEO William C. Rhodes, who now serves as Executive Chairman, has publicly praised Phil Daniele as a leader with exceptional passion for the business and the judgment, temperament, and courage required to guide AutoZone through its next phase of growth. Phil Daniele is firmly committed to maintaining AutoZone’s disciplined capital allocation framework. He has reaffirmed the company’s focus on generating strong ROIC, managing costs carefully, and continuing its long-standing share repurchase program. His approach reflects AutoZone’s identity as an execution focused retailer that prioritizes operational excellence and shareholder value over expansion for expansion’s sake. Overall, Phil Daniele’s leadership profile aligns closely with what has historically made AutoZone successful. His deep internal experience, focus on operational excellence, respect for culture, and disciplined view of capital allocation position him well to lead the company forward.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. AutoZone’s consistently high ROIC is the result of a small number of structural advantages that reinforce each other over time. The business operates in an industry where demand is largely non discretionary. Vehicles are essential for daily life, and repairs cannot be postponed indefinitely. This creates steady volumes across economic cycles and allows AutoZone to earn attractive margins. Scale is the most important driver of AutoZone’s returns. With thousands of stores and dense local coverage, the company can move inventory quickly while offering a much broader assortment than smaller competitors. Its hub and mega hub network allows parts to be shared across markets rather than stocked separately in every store. This reduces excess inventory, improves availability, and enables fast delivery to both DIY customers and professional repair shops, increasing sales without requiring a similar increase in capital invested in the business. AutoZone’s focus on parts only also supports high returns. The company does not invest in repair services, heavy equipment, or labor intensive installations. Stores are standardized and relatively small, with nearly all square footage dedicated to selling products. This keeps store costs low and allows AutoZone to grow earnings without needing to add a large amount of physical infrastructure. Private label products further enhance returns. Brands such as Duralast carry higher margins than national brands, improve inventory control, and strengthen customer loyalty. Because AutoZone owns these brands, it captures more value from each sale without increasing capital investment. The decline in ROIC in fiscal year 2025 reflects the timing of investments rather than any deterioration in the business. AutoZone has been expanding its hub and mega hub network to support growth in its commercial business. These locations require more inventory and upfront spending before they deliver their full benefit. As a result, returns temporarily appear lower until sales and profits catch up. Even after the decline, AutoZone’s returns remain exceptionally strong. There are no signs that the company’s pricing power, customer demand, or execution have weakened. Profitability remains healthy, stores continue to operate efficiently, and the business keeps generating significant cash.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. AutoZone has reported negative equity for many years, but in this case it is not a sign of financial weakness. Instead, it reflects how the company has chosen to return capital to shareholders over a long period of time. AutoZone has consistently generated strong profits and cash flow and has used much of that cash to repurchase its own shares. Accounting rules require these buybacks to reduce shareholders’ equity, even though the underlying business remains highly profitable and stable. The negative equity is therefore not the result of operating losses, declining assets, or financial stress. AutoZone continues to generate significant cash, comfortably meet its obligations, and invest where it sees attractive returns. For a business with steady demand and high profitability, management has preferred to return excess cash to shareholders rather than accumulate it on the balance sheet. The slight improvement in equity in fiscal year 2025 reflects normal year to year timing effects rather than a change in strategy. In that year, retained profits appear to have slightly outpaced the reduction from share repurchases and other equity reducing items. This does not indicate a shift away from AutoZone’s long standing capital allocation approach, but rather a temporary balance between earnings and cash returned to shareholders. Looking ahead, equity is likely to remain low or negative as long as AutoZone continues to prioritize share repurchases and disciplined capital management. This outcome is consistent with management’s focus on generating strong cash flow, earning high ROIC, and returning excess capital to shareholders. As long as the business remains profitable and cash generative, the equity figure should be viewed as an accounting result of shareholder friendly decisions rather than a warning sign about the company’s financial health.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. AutoZone’s ability to consistently generate high free cash flow is rooted in the same structural strengths that drive its high ROIC. The business converts a large share of its earnings into cash because it operates a simple, repeatable retail model with limited leakage. Demand is steady, pricing is resilient, and stores require relatively modest ongoing maintenance spending. Once a store is open and stocked, it produces cash reliably year after year. The reason free cash flow has declined somewhat over the past four years is primarily intentional investment, not weakening fundamentals. Capital expenditures have increased each year as AutoZone has accelerated store growth and expanded its hub and mega hub network. These investments place more inventory closer to customers, particularly commercial customers, and improve delivery speed and availability. They require higher upfront spending before the full revenue and cash benefit shows up, which temporarily reduces free cash flow even as the long term earnings power of the business improves. Importantly, this increase in capital spending does not represent a permanent step up in the cost structure. It reflects a period of heavier investment aimed at strengthening AutoZone’s competitive position and extending its growth runway. Management has been clear that these investments are return driven and focused on areas where AutoZone already has structural advantages. As these hubs mature and sales grow into the expanded footprint, capital spending should become easier to absorb, allowing free cash flow to grow again. Over time, free cash flow and free cash flow margins are likely to increase. The core business continues to generate strong cash, and once the current wave of expansion slows, incremental revenue should require less additional spending. This dynamic has played out before in AutoZone’s history, where periods of heavier investment were followed by strong cash flow growth as new assets reached maturity. AutoZone’s use of free cash flow has been remarkably consistent for decades. The company prioritizes reinvesting in high return opportunities within the business first, primarily stores, distribution capacity, and technology that supports execution. Beyond that, excess cash is overwhelmingly returned to shareholders through share repurchases. Over the past decade alone, shares outstanding have been reduced by roughly 42%. This approach reflects management’s confidence in the durability of the business and its preference for shrinking the share count rather than paying a dividend or accumulating cash on the balance sheet. The combination of strong cash generation and aggressive buybacks has been a powerful driver of per share value creation. The free cash flow yield is at its lowest level in a decade, suggesting that the shares are currently trading at a premium valuation. However, valuation will be revisited later in the analysis.

Debt

Another important aspect to consider is the level of debt. I assess debt sustainability by examining whether a company could theoretically repay its long-term debt within three years of earnings, calculated by dividing total long-term debt by earnings. Based on this approach, AutoZone currently has 3,63 years of earnings in debt, which is slightly above my preferred three-year threshold. However, it is worth noting that AutoZone has remained below four years of earnings in debt for the past two decades. While the current level is marginally above my guideline, it is not a meaningful concern and does not deter me from investing in the company.

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Risks

Competition is a risk for AutoZone because the automotive aftermarket is highly fragmented, price transparent, and constantly evolving, with a wide range of players competing for the same customer. AutoZone faces competition from other national auto parts chains, regional operators, independent stores, wholesale distributors, repair shops, dealerships, and increasingly from online and multi channel retailers. In addition, non specialist retailers such as discount stores and large e commerce platforms also sell overlapping products, further intensifying competitive pressure. Some competitors have structural advantages that can challenge AutoZone in specific areas. Larger or well capitalized players may be able to invest more aggressively in technology, data analytics, artificial intelligence, marketing, and store formats. Online focused retailers often operate with lower costs and emphasize convenience through fast, guaranteed delivery and low cost or free shipping. As more customers begin their shopping journey online, it becomes easier to compare prices, availability, and reviews across multiple platforms, which reduces friction when switching between retailers. AutoZone’s strategy is built around superior customer service, deep in store expertise, and high parts availability, particularly for urgent repairs. While this is a competitive strength, it also results in a higher cost structure than that of some competitors that rely more heavily on self service, automation, or centralized fulfillment. In periods when customers are highly price sensitive, especially among DIY customers, this can place pressure on margins or lead to lost transactions if competitors are willing to compete more aggressively on price. Digital execution is another area of competitive risk. Customers increasingly expect seamless integration between online search, mobile ordering, and in store or same day fulfillment. If competitors are able to offer a more intuitive digital experience, faster delivery options, or better personalization through data driven tools, AutoZone risks losing relevance with certain customer segments.

Macroeconomic factors are a risk for AutoZone because they directly affect product costs, consumer behavior, and the stability of global supply chains, even in a business with largely non discretionary demand. The current global economic and geopolitical environment has introduced elevated uncertainty, particularly around trade policy and tariffs. During fiscal year 2025, new tariffs were announced on imports into the United States, including goods sourced directly or indirectly from countries that are central to AutoZone’s supply chain, such as China, Mexico, and Canada. These measures have been accompanied by threats of retaliatory tariffs, ongoing policy revisions, litigation, and the potential for further sector based or country specific trade actions. As a result, visibility into future trade conditions remains limited, increasing uncertainty around product sourcing and costs. AutoZone is exposed to this environment because a meaningful portion of its private label hard parts, including items such as brake components and electronic parts, are manufactured in or routed through regions subject to tariff risk. If tariffs are increased materially, product costs would rise quickly. Management has acknowledged that tariff related inflation is already showing up in same product price increases across the industry. While AutoZone has actively negotiated with suppliers and shifted sourcing where possible, there are natural limits to how much cost pressure can be mitigated. Over time, a greater share of these higher costs is likely to flow through to retail prices. Because vehicles are essential for daily mobility, demand for many replacement parts is relatively insensitive to price increases. However, the risk arises if cost inflation becomes extreme or persistent. In such a scenario, consumers may begin to delay maintenance that is not immediately urgent, particularly on the DIY side of the business. This is especially relevant given that lower income consumers remain under pressure from higher living costs, elevated interest rates, and reduced discretionary spending power. Macroeconomic weakness can therefore affect AutoZone in two ways at once. Higher tariffs and input costs can push prices up, increasing average ticket size, while simultaneously putting pressure on transaction volumes if consumers choose to postpone repairs where possible. Even if overall revenue holds up, this dynamic can introduce volatility in volumes and mix, particularly between DIY and commercial customers.

The transition to electric vehicles represents a long term risk for AutoZone because electric vehicles fundamentally change the nature of vehicle maintenance and reduce demand for several high volume categories that have historically supported the automotive aftermarket. Electric vehicles have far fewer moving parts than internal combustion engine vehicles and do not require many routine maintenance items such as oil filters, spark plugs, fuel filters, exhaust components, or timing belts. These categories have traditionally generated recurring sales for auto parts retailers and form an important part of AutoZone’s core business. As electric vehicle adoption increases, the overall frequency of maintenance visits is likely to decline for vehicles that are fully electric. This creates a structural headwind over the long term, as fewer routine service needs translate into fewer opportunities for parts replacement and add on sales. If regulatory policies, incentives, or consumer preferences accelerate EV adoption faster than expected, this shift could gradually reduce demand for certain product categories and pressure long term growth. The transition also introduces uncertainty around future inventory needs. AutoZone must continue to serve a large internal combustion engine vehicle base while simultaneously preparing for a different maintenance profile in electric vehicles. Accurately forecasting the pace of this transition is challenging. Stocking the wrong mix of parts or failing to adapt quickly enough could lead to inefficiencies or missed sales opportunities. In addition, supporting EVs requires investment in new product categories, tools, diagnostics, and employee training, all of which could weigh on margins during the transition period. Overall, the transition to electric vehicles represents a long term structural risk rather than an immediate threat. While AutoZone’s current business model remains well aligned with today’s vehicle fleet, the gradual shift toward electric vehicles introduces uncertainty around future maintenance patterns and parts demand.

Reasons to invest

International expansion is a reason to invest in AutoZone because it extends the company’s proven business model into markets that offer long run growth, favorable industry structure, and slower structural disruption than the United States. AutoZone’s international presence is still relatively small but growing quickly. Today, just over 13 percent of its store base is located outside the United States, primarily in Mexico and Brazil, and management has been explicit about accelerating international store openings over the coming years. The company opened more than 100 international stores in fiscal year 2025 and expects to increase that pace going forward, with Mexico accounting for the majority of new locations. Importantly, these markets are already delivering strong results, demonstrating that the model resonates with customers outside the U.S. Mexico represents the most compelling opportunity. The vehicle fleet is older than in the United States, which naturally supports higher demand for replacement parts and maintenance. At the same time, the competitive landscape is far more fragmented. Many local competitors focus on narrow product categories, while AutoZone offers a broad assortment across all major parts categories combined with strong customer service. This differentiation has allowed AutoZone to build a dominant position, with a store base larger than the next several chains combined. The commercial opportunity in international markets is particularly attractive. In Mexico and Brazil, the sales mix is more heavily skewed toward DIY customers compared to the United States, which means the commercial business is still relatively underdeveloped. AutoZone has successfully executed this same transition in the U.S. by investing in assortment depth, delivery speed, and hub and mega hub infrastructure. Management sees an opportunity to replicate this playbook internationally, especially by strengthening commercial assortments and building out hub and mega hub capabilities over time. As these investments mature, international stores are expected to follow a similar profitability curve as U.S. stores, with initial pressure followed by strong long term returns. Another important factor is the slower transition to electric vehicles in Mexico and Brazil compared with the United States. EV adoption in these markets is limited by lower charging infrastructure density, lower government incentives, and a higher reliance on older, lower priced vehicles. This means internal combustion engine vehicles are likely to dominate the fleet for longer, extending the life of traditional aftermarket demand. For AutoZone, this reduces the urgency of the EV transition risk internationally and supports a longer runway for its existing parts categories.

Opening new stores in the United States is a reason to invest in AutoZone because it strengthens the company’s competitive position, supports long term growth, and reinforces the advantages of its logistics driven business model rather than simply adding square footage. AutoZone is not expanding its U.S. store base indiscriminately. The current phase of growth is heavily focused on hubs and mega hubs, which are structurally different from traditional satellite stores. These locations carry a far broader assortment of parts, often more than 100.000 SKUs in the case of mega hubs, and serve a dual purpose. They generate higher sales within the store itself while also acting as regional fulfillment points for surrounding locations. By placing inventory closer to customers, AutoZone improves parts availability, shortens delivery times, and raises service levels across the entire network. This strategy has proven effective. Hub and mega hub stores are consistently growing faster than the rest of the chain, and management has highlighted meaningful sales lift not only inside these stores but also across nearby satellite locations that benefit from expanded assortment access. Improved coverage has translated into better execution, faster delivery, and stronger customer service, particularly for professional repair shops that value speed and reliability. These gains are contributing to market share growth in both the DIY and commercial segments. The pace of domestic expansion also signals confidence in the opportunity set. In fiscal year 2025, AutoZone opened nearly 200 net new stores in the United States, the highest level in more than two decades. Management plans to continue accelerating this effort, with a long term goal of operating more than 10.000 U.S. stores and building out a network of roughly 300 hubs and close to 300 mega hubs. This density enhances AutoZone’s ability to compete on availability and delivery speed, advantages that are difficult for smaller or less integrated competitors to replicate. Importantly, these investments are designed to improve the economics of the existing store base, not just drive unit growth. Each new hub or mega hub expands the effective inventory of dozens of surrounding stores, increasing sales productivity without requiring those stores to carry significantly more inventory themselves. This allows AutoZone to grow revenue while maintaining operational discipline and cost control.

The growth potential of AutoZone’s Commercial, or DIFM, segment is a reason to invest in AutoZone because it represents a large, underpenetrated market where the company can grow faster than the broader industry by leveraging its existing infrastructure and i mers, while the commercial automotive aftermarket has remained more fragmented and less consolidated. This is important because the commercial market is meaningfully larger than the DIY market, yet AutoZone’s market share in commercial remains well below its share in DIY. That gap creates a long runway for growth without requiring AutoZone to reinvent its business model. Management has been executing a multi year strategy to become the preferred supplier for professional repair shops, often referred to as winning the “first call.” For repair shops, the first call goes to the supplier that is most likely to have the right part in stock and deliver it quickly. AutoZone’s investments in parts availability, delivery speed, and service reliability are directly aimed at earning that position. The continued build out of hub and mega hub stores, which dramatically expand local assortment and shorten delivery times, is a central pillar of this effort. The results of these initiatives are already visible. Commercial sales have been growing faster than the overall industry, with strong year over year gains and accelerating transaction growth. Management has highlighted that commercial sales growth has been broad based across regions, indicating that the strategy scales nationally rather than being dependent on isolated markets. Growth has been driven by both winning new customers and increasing the share of wallet with existing repair shops, suggesting improving trust and deeper customer relationships. Technology and operational execution further support commercial growth. AutoZone has enhanced its commercial ordering platforms and invested in tools that improve delivery routing and speed. With commercial programs now operating in over 90% of domestic stores, the company is able to leverage its existing store footprint to serve professional customers without building a separate infrastructure from scratch. This allows commercial sales to grow with relatively modest incremental cost. Importantly, management views the commercial opportunity as far from saturated. There remains significant room to expand sales per commercial program, add new programs, and deepen relationships with national, regional, and local accounts. As commercial customers tend to be repeat buyers with high order frequency, success in this segment supports more stable and predictable revenue over time.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 144,87, which is from the fiscal year 2024. I have selected a projected future EPS growth rate of 13%. (EPS has grown by a CAGR of 13,54% in the past decade). Additionally, I have selected a projected future P/E ratio of 26, which is twice the growth rate. This decision is based on AutoZone's historically higher price-to-earnings (P/E) ratio. Lastly, our minimum acceptable rate of return is already set at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $3.160,51 We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy AutoZone at a price of $1.580,26(or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 3.117, and capital expenditures were 1.327. I attempted to analyze their annual report to calculate the percentage of capital expenditures designated for maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 929 in our calculations. The tax provision was 636. We have 16,73 outstanding shares. Hence, the calculation will be as follows: (3.117 – 929 + 636) / 16,73 x 10 = $1.687,99 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With AutoZone's free cash flow per share at $107,01 and a growth rate of 13%, if you want to recoup your investment in 8 years, the Payback Time price is $1.542,62.

Conclusion

I find AutoZone to be an intriguing company with strong management and a durable competitive position built on scale, logistics, and consistent operational execution. The company has delivered high ROIC for many years, and these returns are supported by structural advantages that are likely to persist. While free cash flow has declined over the past four years, this reflects a deliberate increase in capital expenditures to support growth rather than any deterioration in the business. Competition remains a risk because AutoZone operates in a fragmented and price transparent market where customers can easily compare prices, availability, and delivery options across physical and online competitors, some of which benefit from lower cost structures or stronger digital capabilities that can pressure margins, particularly among price sensitive DIY customers. Macroeconomic factors also pose a risk, as trade policy uncertainty and tariffs can raise product costs and push prices higher, while broader economic pressure may lead consumers to delay non urgent repairs, creating volatility in volumes even if overall demand remains resilient. The transition to electric vehicles represents a long term risk as EVs require less routine maintenance and eliminate several high volume parts categories, introducing uncertainty around future parts demand and margins over time. Against these risks, AutoZone’s growth opportunities remain compelling. International expansion allows the company to deploy its proven model in underpenetrated markets such as Mexico and Brazil, where vehicle fleets are older, competition is more fragmented, and EV adoption is slower, creating a long runway for profitable growth. In the United States, the continued rollout of hub and mega hub stores improves inventory availability, delivery speed, and service levels across the network, driving market share gains and enhancing the productivity of existing stores. In addition, the Commercial or DIFM segment represents a large and underpenetrated opportunity where AutoZone can leverage its existing infrastructure to become the preferred supplier for repair shops, supporting faster than industry growth and more stable, repeat driven revenue. Overall, I view AutoZone as a high quality business, and buying shares around the Ten Cap price of $1.688 appears attractive for a long term investment.

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