O'Reilly Automotive: Strong Prospects in the End-Market Will Lead to Upside

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May 31, 2015

The strength of the automotive aftermarket growth is clearly visible, and O’Reilly Automotive (ORLY, Financial) is no exception. The company posted impressive numbers on the board and is now well positioned to gain more profits in 2015. The company grew on the back of solid growth comp store sales mainly due to the growth in the undercar segment such as brakes, driveline, chassis and ride control.

O’Reilly’s management is optimistic about an upbeat performance in future. The recovering U.S economy and growth in the automobile sector should also have a positive impact on the overall all performance of the company.

Impressive financial performance

A 6.3% growth in the comp stores sales clearly indicates that the company is seeing good traction in the market for its services and it definitely has much steam to grow. Being in line with this growth, O’Reilly is now expecting a solid 3% to 6% growth in its outlook for 2015. As per market share, the stock has gained significantly over the period and in fact is now trading at high levels. An exciting thing to note here is that the company not only yielded a 26% EPS growth during the quarter, but also reported the 24th consecutive quarter for EPS growth. This is certainly a solid growth and must attract investors in future with its stock trading higher in future.

The company is now focusing on various other aspects to improve its profitability. O’Reilly is pleased to see good penetration along with growth in its new and emerging markets and expects them to be key drivers for its success in future. It is seeing good growth opportunities in the DIY market as well. With the growing U.S economy and drop in the unemployment level by 6.7%, O’Reilly is confident of its success. In addition, the lower gas prices should further benefit the DIY business in 2015.

As it is aftermarket Service Company, O’Reilly is counting on growth in the miles driven especially on the out of warranty vehicles. This is a solid long term opportunity for the company which should benefit it for the foreseeable future. Seeing many bright growth opportunities around it, O’Reilly is now expecting the operating margin to be between 18.1% to 18.5% sales which will help it to attract many investors leading to good growth in market share as well.

Conclusion

The stock looks reasonable with a trailing P/E of 29.77 while the forward P/E of 22.50 shows good earnings growth in the near term. It is expected to attract investors leading to good improvement in market share on the back of attractive profit margin of 10.78%. As the aftermarket industry is expected to boom in future, the stock can be a good long term holding as its earnings for the next five years are growing at a CAGR of 15.57% as compared to the industry average of 13.18%. All these facts are indicating a smooth growth of the company in future. As of now, O’Reilly is definitely a good pick.