Tags: OReilly | Automotive | cars | ORLY

O'Reilly Automotive Benefits as Drivers Hold On to Cars

By Greg Brown   |   Thursday, 21 Jun 2012 06:55 PM

O'Reilly Automotive (ORLY), as a seller of auto parts to consumers and professionals, should benefit as more drivers hold on to older cars in a weak economy. And it should win whether those drivers do their own repairs or use shops. Indeed, the important question is not can the retailer make money, but can it grow sales fast enough to justify a premium on the share price?

O'Reilly Automotive is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States, selling products to both do-it-yourself customers and professional service providers, what the retailer calls its “dual market strategy.”

On July 11, 2008, the company completed acquisition of CSK Auto Corporation, one of the largest specialty retailers of auto parts and accessories in the western United States and one of the largest such retailers in the country, based on store count at the date of acquisition.

At Dec. 31, 2011, O’Reilly operated 3,740 stores in 39 states.

“Our intent is to be the dominant auto parts provider in all the markets we serve, by providing superior customer service and significant value to both DIY and professional service provider customers,” management said in a filing.

O'Reilly Automotive has a market cap of $12.63 billion in a sector, specialty retail, where the average company size is $5.99 billion. Its trailing 12-month P/E ratio is 24.20 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.46, compared to 1.32 for the sector.

Its projected earnings per share growth for the coming year is 14.78 percent, compared to a sector average of 15.68 percent.

Vulnerable


Analysts are generally positive on ORLY, with buy or outperform calls from Raymond James, UBS, Morgan Stanley, Piper Jaffray, and Morgan, Keegan & Company.

“O’Reilly continues to benefit from its dual market strategy and strong distribution network. However, the company’s store locations are highly concentrated, which makes it vulnerable to several economic and natural problems in those areas,” the analysts at Zacks Investment Research wrote in mid-June.

“Thus, we maintain our neutral recommendation on the stock and set a target price of $108.”

O'Reilly Automotive next reports on July 25.

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