fbpx

O’Reilly Automotive Continues to Click on All Cylinders

Stock (Symbol)

O’Reilly Automotive (ORLY)

Stock Price

$276

Sector
Food & Necessities
Data is as of
March 24, 2016
Expected to Report
Apr 20 -Apr 25
Company Description
oreilly_logoO’Reilly Automotive, Inc. (O’Reilly) is a specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States. The Company’s stores carry a product line, including new and remanufactured automotive hard parts, maintenance items and various automotive accessories. As of December 31, 2014, the Company owned and operated 4,366 stores in 43 states, servicing both the do-it-yourself (DIY) customers and the professional service providers. O’Reilly’s stores offer new and remanufactured automotive hard parts, such as alternators, starters, fuel pumps, water pumps, brake system components, batteries, belts, hoses, temperature control, chassis parts and engine parts; maintenance items, such as oil, antifreeze, fluids, filters, wiper blades, lighting, engine additives and appearance products, and accessories, such as floor mats, seat covers and truck accessories. Source: Thomson Financial
Sharek’s Take
David SharekO’Reilly Automotive continues to click on all cylinders. For years analysts have felt ORLY could grow profits 16% to 18% a year, yet the company has been delivering 25% growth. Management’s secret sauce is (1) increasing store count by around 200 or 5% a year (2) same store sales growth of 5% or more the past 9 qtrs, including a sparking 8% the last 2qtrs (3) increasing profit margins per store and (4) big shares buybacks. ORLY’s share count fell from 140 million to 100 million from 2011-2014 as management bought back stock with excess cash. It spent $287 million buying back shares last qtr, up from $274 m 2qtrs ago and $220m 3qtrs ago. Buybacks were $1.14 billion in 2015, around 4% of shares. Also, ORLY’s beaten the street every quarter since Fall 2011 and even then it still hit estimates. Low gas prices are allowing people to drive more, and long-term ORLY expects to grow its store count by 40% in the US and expand into Canada and Mexico via store openings and acquiring other chains, then going into the stores to improve sales and profit margins. This is one quality stock, and investors know this. The only negative here is the stock’s not on sale like it was last qtr. Still, I think profits and perhaps the stock can continue to grow 16%-25% long-term.
One Year Chart
ORLY_2016_Q1Last qtr ORLY delivered 24% profit growth on just 11% sales growth — that’s efficiency. The company beat analysts $2.08 profit estimate by 11 cents, and next qtr’s estimate goe increased 11 cents. Same store sales increased a solid 8%. Management sees SSS growth of 3-5% this qtr and for 2016. Profit estimates for the next 4 qtrs are: 20%, 15%, 14% and 15%. ORLY has been upping and beating estimates for a while now, and my guess is +20% profit growth will continue.
Fair Value
ORLY_2016_Q1_PHThe only negative about ORLY is that it’s not on sale. It was on sale last qtr when it was $235, but investors saw the quality at a discount and jumped right in. Also, the P/E of 26 is at the high-end of the stock’s historic range. ORLY doesn’t pay a dividend, instead it buys back stock and other auto parts chains with its money.
Bottom Line
ORLY_2016_Q1_10yrO’Reilly Automotive continues to click on all cylinders but investors have taken notice and pushed the stock up a bit since last qtr. Now ORLY is fairly valued, but is estimated to grow 16% a year in the future (which could be 20% as it has been beating expectations). Management is as good as they come and grows via expansion, acquisitions, increased efficiency and stock buybacks. The stock ranks 18th of 34 stocks in the Growth Portfolio Power Rankings and ranks 7th of 34 stocks in the Conservative Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

18 of 34

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

7 of 34

Not a member? Sign up here for $25 a month.