AutoZone, Inc.AZONYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $5,944.50 per share(market-calibrated)

+63.4%

Upside to Fair Value

Current

$3,637.17

Pure Model

$6,833.98

Fair Value

$5,944.50

Bull Case

$8,746.39

Bear Case

$5,155.80

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

0.50%

Calibrated Growth

2.13%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $6,833.98.

What's Driving This Ratingfor AZO

↓

CapEx normalizing toward maintenance

Historical CapEx is 4.74% of revenue (heavy investment phase). Model fades this to 4.00% by Year 10, freeing up ~$242M in annual FCF. This is the biggest driver of long-term cash flow improvement.

→

Moderate revenue growth

Analyst consensus projects 8.49% revenue growth, fading to 3.00% by Year 10. Revenue reaches $32.6B (vs $18.9B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 250bps below the model's 3.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 63.12% indicates efficient cash generation. FCF reaches $4.7B by Year 10 (14.29% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.35

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)6.10%

Cost of Debt

Pre-tax Cost of Debt2.69%

Tax Rate20.29%

After-tax Cost of Debt2.15%

Equity Weight (E/V)83.25%

Debt Weight (D/V)16.75%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (83.25% × 6.10%) + (16.75% × 2.15%)

= 5.50%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$20.5B	$23.8B	$26.6B	$29.4B	$32.6B
EBIT	$4.1B	$4.8B	$5.3B	$5.9B	$6.5B
Tax	$833M	$965M	$1.1B	$1.2B	$1.3B
NOPAT	$3.3B	$3.8B	$4.2B	$4.7B	$5.2B
+ Depreciation	$545M	$631M	$706M	$779M	$865M
- Capex	$974M	$1.1B	$1.2B	$1.2B	$1.3B
- Δ NWC	$161M	$172M	$148M	$133M	$95M
Free Cash Flow	$2.7B	$3.2B	$3.6B	$4.1B	$4.7B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$2.5B	$2.7B	$2.8B	$2.8B	$2.7B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$4.7B

Terminal Growth Rate3.00%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$192.1B

PV of Terminal Value$112.5B

Exit Multiple Method

Year 10 EBITDA$7.4B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$147.7B

PV of Terminal Value$86.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$27.3B

PV of Terminal Value$112.5B

Enterprise Value$139.7B

(-) Net Debt$12.0B

Equity Value$127.7B

Shares Outstanding17M

Price per Share$7,607.60

Exit Multiple Method

PV of Projected FCFs$27.3B

PV of Terminal Value$86.5B

Enterprise Value$113.8B

(-) Net Debt$12.0B

Equity Value$101.7B

Shares Outstanding17M

Price per Share$6,060.36

Pure Model Fair Value

$6,833.98

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
3.50%	$8,801.80	$8,413.76	$8,044.04	$7,691.68	$7,355.80
4.50%	$7,479.29	$8,413.76	$8,044.04	$7,691.68	$7,355.80
5.50%	$5,853.74	$6,262.17	$6,833.98	$7,691.68	$7,355.80
6.50%	$4,846.94	$5,065.80	$5,347.19	$5,722.38	$6,247.64
7.50%	$4,133.96	$4,265.65	$4,426.61	$4,627.82	$4,886.50

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$5,155.80

41.8% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.44

Base Case

$6,833.98

87.9% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 0.35

Bull Case

$8,746.39

140.5% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.30

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Consumer Cyclical Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth8.49%

Year 3 Revenue Growth7.81%

Year 5 Revenue Growth5.88%

Year 7 Revenue Growth4.73%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin19.98%

Tax Rate20.29%

Historical Capex / Rev4.74%

Terminal Capex / Rev4.00%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 20x EV/EBITDA (Consumer Cyclical sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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