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What Factors Could Affect AutoZone’s Valuation Multiples?

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Dec. 9 2016, Updated 11:05 a.m. ET

AutoZone’s valuation multiples

AutoZone’s (AZO) valuation multiples can be compared with peers such as O’Reilly Automotive (ORLY) and Advance Auto Parts (AAP). Valuation multiples are widely used in the auto parts retail industry to compare companies.

But it’s important to remember that we can only use valuation multiples to compare companies that are similar in nature in terms of business, size, or financials.

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AZO’s forward multiples

As of December 7, 2016, AutoZone’s forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple was 11.1x. In comparison, forward EV-to-EBITDA multiples of peers O’Reilly Automotive and Advance Auto Parts were 13.5x and 11.3x, respectively.

AZO’s forward PE (price-to-earnings) multiple was 17.3x. That’s much lower than ORLY’s and AAP’s forward PE multiples of 23.6x and 22.7x, respectively.

Valuation multiples of auto manufacturers (VCR), including General Motors (GM) and Ford (F), are trading much lower than the multiples of these auto parts sellers.

Factors to watch going forward

Unlike the auto manufacturing business, the auto parts retail business has comparatively lower investment requirements to drive growth. That lowers AutoZone’s risk profile, which should be positive for its valuation multiples.

AutoZone has demonstrated stable year-over-year business growth in the last couple of years. However, its valuation multiples are still trading much lower than its peers, which could be another reason some investors think it could be the right time to invest in AutoZone stock.

Read on to the next part, where we’ll find out what Wall Street analysts are recommending for AutoZone stock after its 1Q17 earnings release.

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