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Summer Driving Season Should Be a Good One for O’Reilly

Stock (Symbol)

O’Reilly Automotive (ORLY)

Stock Price

$260

Sector
Food & Necessities
Data is as of
June 16, 2016
Expected to Report
Jul 27 – Aug 1
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 SharekAs the Summer driving season kicks into full swing, O’Reilly Automotive continues to hum along. Once again the auto parts retailer delivered mid 20% profit growth, which was above analyst expectations. O’Reilly is one of the best run companies in America. Although sales grow only around 10% a qtr, management is delivering +20% profit growth through (1) increasing store count by around 200 — or 5% — a year (2) getting same store sales growth of 5% or more the past 10 qtrs (3) increasing profit margins and (4) doing big share buybacks. ORLY’s share count fell from 140 million to 100 million from 2011-2014 as management bought back stock. It spent $384 million on buybacks last qtr, up from $287 m 2qtrs ago, up from $274 m 3qtrs ago and $220m 4qtrs ago. The company has beaten analyst profit estimates every quarter since Fall 2011 and even then it met estimates. ORLY expects to grow its store count by 40% in the US and expand into Canada and Mexico via store openings and acquiring other auto parts chains, then going into the stores to improve sales and profit margins. I expect O’Reilly to have a good Summer driving season. Gas is low and the weather is hot! This is a high quality stock for both conservative and growth investors.
One Year Chart
ORLY_2016_Q2Last qtr the auto parts retailer delivered 26% profit growth on just 10% sales growth (6% same store sales growth). Analysts had expected 20% profit growth. Management lowered next qtr’s guidance due to an inventory expense with a supplier, but this is a one-time charge that will be recovered some later in the year (2QtrsOut & 3QtrsOut est were raised). Estimates for the next 4 qtrs stand at 12%, 15%, 16% and 12%. ORLY has beaten the street every qtr for almost 5 years now and I imagine +20% profit growth will resume after next qtr.
Fair Value
ORLY_2016_Q2_PHORLY has come down a bit since I reviewed the stock last qtr. The P/E is down from 26 to 24, which helps the long-term appeal. I’ve taken my Fair Value P/E down just a tad from 26 to 25. Even though the stock has come down a bit, I wouldn’t say it’s on sale. Investors know what a good stock this is, and are sticking with it.
Bottom Line
ORLY_2016_Q2_10yrO’Reilly Automotive has a recipe for success, and makes every effort to maximize shareholder value, Profits have grown 21% a year the past decade as the stock’s gone up 24% a year. Although the stock doesn’t pay a dividend, its is suitable for conservative investors due to its steady business model and stock buybacks. ORLY ranks 23rd of 39 stocks in the Growth Portfolio Power Rankings and ranks 8th of 38 stocks in the Conservative Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

23 of 39

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

8 of 38

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