On Apr 19, we maintained our Neutral recommendation on
O'Reilly Automotive Inc.
) based on its benefit from its dual market strategy and strong
distribution network and better performance in 2012-fourth
quarter. However, we remain concerned about the company's
concentrated store locations and huge inventory level.
On Feb 6, O'Reilly reported a 22.6% rise in adjusted earnings to
$1.14 per share for the fourth quarter of 2012 from 93 cents in
the prior-year quarter, surpassing the Zacks Consensus Estimate
by $1.08. Revenues in the quarter grew 7.2% to $1.5 billion,
meeting the Zacks Consensus Estimate.
Following the release of the fourth quarter results, the Zacks
Consensus Estimate for 2013 went up 5.0% to $5.70 per share. The
Zacks Consensus Estimate for 2014 also climbed 4.8% to $6.50 per
O'Reilly benefits from its dual market strategy and strong
distribution network. A mix of commercial sales offers the
company with greater exposure to less discretionary sales of hard
parts and allows it to operate in smaller markets.
O'Reilly will primarily benefit from the aggressive store
expansion strategy and share repurchase policy. During the fourth
quarter of 2012, O'Reilly opened 24 new stores and 185 store
openings in 2012. It also intends to open a total of 190 new
stores in 2013. With new stores, O'Reilly plans to penetrate
further in the existing markets as well as expand in new and
However, we are concerned about O'Reilly's huge level of
inventory, which constituted 83.3% of current assets as of Dec
31, 2012. In addition, the stores of O'Reilly are concentrated in
a few locations in the U.S. mainly Texas and Calif. Thus, any
adverse economic and weather conditions can impact its earnings.
In addition, rising competition from automotive retailers
Auto Parts Inc.
) is a matter of concern for the company.
Other Stocks to Look For
) with a Zacks Rank #2 (Buy) are performing well in the same
industry where O'Reilly operates.
ADVANCE AUTO PT (AAP): Free Stock Analysis
AUTOZONE INC (AZO): Free Stock Analysis
CARMAX GP (CC) (KMX): Free Stock Analysis
O REILLY AUTO (ORLY): Free Stock Analysis
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