Consider it another victory lap for
O’Reilly Automotive.
The auto parts retailer released upbeat first-quarter earnings results after Wednesday’s close, before its stock gained 2.4% on Thursday.
O’Reilly (ticker: ORLY) reported earnings of $8.28 a share and a 12.5% increase in revenue to $3.71 billion, handily beating consensus estimates. Same-store sales jumped nearly 11%, and the company said it expects to open almost 200 new stores this year.
The report was just one reason that The Wall Street Journal argued on Thursday that auto parts retailer stocks—bolstered by high vehicle prices and financing costs that are forcing many Americans to repair their rides rather than buy new ones—looks likely to keep cruising higher.
That dynamic isn’t new: As of Friday afternoon, O’Reilly shares were trading at $914—up more than 72% since Barron’s recommended the stock in spring 2021. By contrast,
Apple
(AAPL) gained about 25% in that time frame, which saw the
S&P 500
slip nearly 1%.
In 2021, we argued that auto supply chain snarls, combined with Americans’ return to the roads for in-person events and “revenge” travel road trips, would encourage consumers to spend money on their current cars. Throw in an uncertain economy—plus the eye-watering costs of a new car due to higher sticker prices and interest rates—and it’s clear why many Americans may be motivated to fix up their vehicles for the foreseeable future. Keep in mind that a S&P Global report found that cars and trucks in the U.S. are on average more than a dozen years old—and likely require plenty of maintenance.
At the same time, O’Reilly isn’t passively benefiting from macro tailwinds. The company sports a best-in-class distribution system that can get needed parts to mechanics fast—a major reason
Amazon.com
(AMZN) has largely failed to make big strides in the industry—while it’s also expanding its international footprint. As Barron’s noted in 2022, that dynamic made auto parts retailers like O’Reilly attractive in good and bad economic times.
Of course, O’Reilly’s lead in a robust area of retail hasn’t gone unnoticed, and it’s no longer the bargain it was before: At 23.7 times forward earnings, the stock trades at a premium compared to its peers and its own five-year average.
Nonetheless, the company is doing its best to earn its premium. Analysts predict earnings will jump nearly 14% over the long term, after notching more than 11% earnings per share growth this year and in 2024.
CFRA analyst Garrett Nelson raised his price target on O’Reilly by $75 to $1,000. The stock is one of his top picks, as he expects the “average U.S. vehicle age to continue rising, supporting near- and intermediate-term aftermarket parts demand.”
While other retailers are suffering from consumers’ belt tightening and the broader economy’s health is in question, O’Reilly’s results show why it’s been many investors’ lucky charm.
Write to Teresa Rivas at [email protected]
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