O’Reilly Automotive: Long-Term Drivers But Potential Speed Bumps Ahead – Seeking Alpha

May 26, 2022 by No Comments

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My investment thesis

In my October 7, 2021, article on O’Reilly Automotive (NASDAQ:ORLY), a distributor and retailer of auto parts, I articulated my key thesis points, which are summarized and updated in the table below.

Thesis points


Even though the auto sector has seen low growth, the leading auto part retailers consistently deliver attractive growth through superb execution and market share gains

O’Reilly, together with AutoZone (AZO) and Advanced Auto Parts (AAP), have executed well and continued to gain market share. These top three players now have a combined 35% share

Growth accelerated following the COVID outbreak as consumers spent time and stimulus money on their cars, and chose to drive over taking public transportation

The COVID outbreak led to supply chain disruptions, which has resulted in persistent inflation across the sector. The number of miles driven has rebounded from pandemic lows

The cutback in new car production resulting from the semiconductor chip shortage is causing consumers to purchase and drive pre-owned, out of warranty cars which require more replacement parts

The number of new vehicles sold has remained weak and is currently below 1999-2007 and 2012-2019 levels, which bodes well for auto part retailers

As this builds on my previous article, I strongly encourage you to review it for additional background before reading on.

Growing strong for over a decade

O’Reilly’s revenue and EBITDA have grown steadily over the last decade and accelerated after the COVID outbreak (figure 1).

Figure 1: O’Reilly per-share revenues and EBITDA

Created by author using publicly available financial data

The company has continued to increase store count through the pandemic (figure 2, dotted red line, right axis), and comparable store sales skyrocketed to 13.3% in 2021 (solid red line, left axis). Comp store sales for the first quarter of 2022 remained strong at 4.8%.

Figure 2: O’Reilly comp store sales and numbers of stores

Created by author using publicly available financial data

O’Reilly has grown revenues faster (figure 3, red line) than its competition, which are Advanced Auto Parts (AAP, blue line), AutoZone (AZO, orange line), and Genuine Parts (GPC) (green line).

Figure 3: Comparison of auto parts retailers’ revenue growth

Created by author using publicly available financial data

O’Reilly’s EBITDA margins are higher than the competition and have expanded since the COVID-19 outbreak (figure 4, red line).

Figure 4: Auto parts retailers’ EBITDA margins (TTM) comparison

Created by author using publicly available financial data

O’Reilly, along with AutoZone (figure 5, red and orange lines), have reduced share count by over 20% in the last 4 years, more than Advanced Auto and …….

Source: https://seekingalpha.com/article/4514519-oreilly-automotive-long-term-drivers-potential-speed-bumps-ahead


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