TIVP007: AutoZone (AZO): Under The Hood w/ Shawn O’Malley

The Intrinsic Value Podcast - The Investor’s Podcast Network

The Investor's Podcast Network

Investing, Education, Business

4.6 • 593 Ratings

🗓️ 16 February 2025

⏱️ 67 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

In today’s episode, Shawn O’Malley (@Shawn_OMalley_) breaks down AutoZone, ticker: AZO, a 100-bagger stock that continues to wow investors with its massive share repurchases after already buying back more than 90% of its total shares outstanding in the past two decades. AutoZone is a seemingly mundane auto parts retailer, a common store you’ve probably driven past or visited dozens of times, but its returns on capital are anything but average. Shawn goes through the company’s surprising origin story, how it scaled nationwide and internationally with a simple business model, why the business is so profitable and why it has been able to fend off Amazon so well, and whether this quality stock is attractively valued today, plus so much more! Prefer to watch? Click here to watch this episode on YouTube. IN THIS EPISODE, YOU’LL LEARN 00:00 - Intro 05:51 - How AutoZone was born out of a family grocery chain. 11:30 - How AutoZone leverages “mega hubs” to keep an inventory of over 100,000 SKUs. 13:45 - Why AutoZone is able to boost its free cash flows with negative working capital. 13:45 - How is AutoZone able to repurchase so much of its stock? 28:37 - What has made the company so resistant to e-commerce and pressures from Amazon? 35:58 - Why AutoZone’s customers are price insensitive and value service quality more than anything. 53:40 - Where AutoZone is expanding internationally and how that affects the business’s growth prospects. 59:59 - How to think about the company’s intrinsic value and how expected returns fluctuate based on your purchase price per share. 01:05:05 - Whether Shawn adds AutoZone to The Intrinsic Value Portfolio. And much, much more! *Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences. BOOKS AND RESOURCES Get smarter about valuing businesses in just a few minutes each week through our newsletter, The Intrinsic Value Newsletter. Value Investors Club post on AZO. Quartr’s deep dive into AZO. CNBC on how AutoZone has fended off Amazon. Attend the 2025 Berkshire Hathaway shareholder meeting and meet-ups with The Investors Podcast Network Check out the books mentioned in the podcast here. Enjoy ad-free episodes when you subscribe to our Premium Feed. NEW TO THE SHOW? Follow our official social media accounts: X (Twitter) | LinkedIn | Instagram | Facebook | TikTok. Browse through all our episodes (complete with transcripts) here. Try Shawn's favorite tool for picking stock winners and managing our portfolios: TIP Finance. Enjoy exclusive perks from our favorite Apps and Services. Learn how to better start, manage, and grow your business with the best business podcasts. SPONSORS Support our free podcast by supporting our sponsors: Netsuite TurboTax Public Airbnb Connect with Shawn: Twitter | LinkedIn | Email HELP US OUT! Help us reach new listeners by leaving us a rating and review on Spotify! It takes less than 30 seconds and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it! Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

Transcript

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0:00.0	You're listening to TIP.
0:02.7	On today's show, I've got a compounder with a pretty compelling investment case.
0:07.3	If you think they can, well, keep doing what they've been doing for decades.
0:11.1	I'm going under the hood of AutoZone stock, digging into what is a surprisingly profitable
0:16.3	and well-managed business despite its rather mundane operations.
0:20.6	Since its IPO in 1991, AutoZone has compounded returns for share. well-managed business, despite its rather mundane operations.
0:21.1	Since its IPO in 1991, AutoZone has compounded returns for shareholders at north of 20%
0:26.4	per year, an impressive rate of return over any time period, really, but all the more impressive
0:31.1	after considering they've been operating for three decades in the public eye.
0:35.5	Despite returns on invested capital of almost 30% per year, steady revenue
0:40.2	growth over the last decade, and a pension for share buybacks that have consumed about half of all
0:45.0	the company's outstanding shares since 2015, AutoZone trades at a reasonable 21 times price to earnings
0:50.9	ratio, which on the surface seems like a more than fair price for a company of such
0:55.0	quality. In this episode, I will dig in to learn about the enterprise behind these numbers,
1:00.5	tell the story of AutoZone in terms of where the business has been and where it might go next,
1:05.9	and then try to determine what I think is a fair estimate of the company's intrinsic value.
1:10.8	From there, if the stock is
1:12.3	priced attractively enough, I may or may not add it to the intrinsic value portfolio of stocks
1:17.1	I've been building from week to week on this podcast. With that, let's get right into it.
1:25.1	You're listening to the Intrinsic Value podcast by the Investors Podcast Network.
1:29.3	Since 2014, with over 180 million downloads, we've learned directly from the world to best investors.
1:36.3	Now, we're applying those lessons to analyze businesses and investment opportunities every week,
	...

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