
AutoZone, Inc.
Eades, Kenneth M.;...
AutoZone, Inc.
Eades, Kenneth M.; Brenner, Justin
F-1672 | Published July 27, 2012 | 16 pages. Case
Collection: Darden School of Business
Product Details
The case can be taught in an introductory corporate finance course or to more experienced students or executives to spur a discussion about share repurchases and corporate financial strategies in general. If used in an introductory course, the case is most effective if preceded by a traditional dividend class. It follows a portfolio manager of Johnson & Associates, Mark Johnson, who is reviewing his holdings, including his position in AutoZone in early 2012. A prominent shareholder, Edward Lampert, had begun liquidating his position in AutoZone, and Johnson is concerned that Lampert’s reduced position could lead the company to stop using share repurchases as a method of distributing cash flows to shareholders. The case lists a number of alternative uses for the cash flows and asks students to assume Johnson’s role as an analyst and assess the likely impact of those alternatives on AutoZone’s stock price.
•Identify a high-performing company for which stock-price appreciation is consistent with other financial performance metrics such as EPS growth and ROIC. •Introduce share repurchases as a strategy for distributing operating cash flow. •Examine the impact share repurchases have on shares outstanding, earnings per share, and the book value of equity. •Illustrate that ROIC is not affected by repurchases. •Examine alternatives to repurchasing shares including financial uses (cash dividend and debt repayment) and operating uses (investing in organic and inorganic growth). •Explore the hypotheses that share repurchases create real value or serve as a financial signaling tool that increases share price.
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