On February 22, 2023, O’Reilly Automotive, Inc. (ORLY) reached the milestone of opening its 6,000th store in Fort Gibson, Oklahoma.

ORLY’s stock has gained 2.3% over the past month to close the last trading session at $848.98. The stock has gained 20.7% over the past six months.

In this article, we will examine the stock’s fundamentals which should enable it to keep up the momentum.

For 65 years, ORLY has been operating in the United States and Mexico as a specialty retailer and supplier of automotive aftermarket parts, tools, supplies, equipment, and accessories. The company sells its products to do-it-yourself and professional service provider customers.

Here are the factors that could affect ORLY’s performance in the upcoming months:

Impressive Growth Record

Over the past three years, ORLY’s revenue has grown at a 12.4% CAGR, while its EBITDA has grown at a 14.8% CAGR.

Over the same time horizon, the company’s net income and EPS have grown at 16% and 23.2% year-over-year, respectively.

ORLY’s total assets have grown at a 5.6% CAGR over the past three years.

Robust Financials

ORLY’s sales increased by 10.6% year-over-year to $3.64 billion in the fourth quarter ended of the fiscal year, which ended December 31, 2022. During the same period, the company’s gross profit increased by 6.9% year-over-year to $1.85 billion, while its operating income increased by 0.9% over the previous-year quarter to $682.22 million.

As a result, ORLY’s quarterly net income increased by 1.8% and 9.6% year-over-year to $528.57 million, or $8.37 per share.

ORLY’s sales increased by 8.1% year-over-year to $14.41 billion in the fiscal year that ended December 31, 2022. During the same period, the company’s gross profit increased by 5.2% year-over-year to $7.38 billion, while its operating income increased by 1.3% over the previous year to $2.96 billion.

As a result, ORLY’s net income for the fiscal year increased by 0.4% and 7.5% year-over-year to $2.17 billion, or $33.44 per share.

ORLY’s total assets stood at $12.63 billion as of December 31, 2022, compared to $11.72 billion as of December 31, 2021.

Consistent Return of Capital to Shareholders

ORLY has been utilizing its free cash flow to return capital to shareholders by repurchasing its shares.

During the fourth quarter that ended December 31, 2022, ORLY repurchased 0.5 million shares of its common stock, at an average price per share of $786.19, for a total investment of $421 million.

During the fiscal year that ended December 31, 2022, the company repurchased 5.0 million shares of its common stock, at an average price per share of $661.66, for a total investment of $3.28 billion.

Since the inception of its repurchase program in January 2011 till February 8, 2023, ORLY has repurchased a total of 91.0 million shares of its common stock, at an average price of $224.08, for a total aggregate investment of $20.38 billion. As of the latter date, the company had approximately $1.37 billion remaining under its current share repurchase authorization.

These repurchases have demonstrated the management’s confidence in the company’s prospects while increasing the intrinsic value of the holdings of existing shareholders and offering adequate value and fair prices to exiting investors.

Effective and Efficient Asset Utilization

ORLY’s trailing-12-month gross profit margin of 51.23% is 46.4% higher than the industry average of 35%. Likewise, the company’s trailing-12-month EBITDA and net income margins of 23.04% and 15.08% also surpass the respective industry averages of 11.43% and 4.56%.

Due to its disciplined share repurchases, ORLY’s trailing 12-month return on total capital of 32.81% compares favorably with the industry average of 6.35%, while its trailing 12-month return on total assets of 17.21% also beats the industry average of 4%.

Optimistic Analyst Estimates

ORLY’s revenue and EPS for the first quarter of the fiscal year that ended March 31, 2023, are expected to increase 8.2% and 11.7% year-over-year to $3.57 billion and $8.01, respectively.

For the entire fiscal ORLY’s revenue and EPS are expected to increase 6.9% and 10.4% over its previous-year values to $15.41 billion and $36.91, respectively. Both metrics are expected to increase to $17.15 billion and $45.38 by the fiscal year 2025.

POWR Ratings Reflect Steady Prospects

ORLY’s overall B rating translates to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ORLY has an A grade for Quality, consistent with its excellent profitability and impressive capital discipline.

In addition, the stock has B grades for Growth and Sentiment, in sync with its decent track record and optimistic analyst estimates.

ORLY ranks #21 of 60 stocks in the A-rated Auto Parts industry. Click here to see the Value, Momentum, and Stability Ratings for ORLY.

Bottom Line

In addition to the fundamentals discussed above, production cuts by OPEC+, which have taken about 3% of the world’s petroleum production off the market, have led to a sudden surge in the price of crude oil in the market.

This could act as a tailwind for ORLY’s business prospects by the potential negative impact on new automobile sales that would prolong the use of old vehicles and, by extension, the use of auto parts.

Therefore, it could be wise to invest in this stock now.

How Does O’Reilly Automotive, Inc. (ORLY) Stack up Against Its Peers?

ORLY has been rated B, equating to a Buy. However, investors could check out these other stocks with an A (Strong Buy) rating overall, and also for Momentum: Global Partners LP (GLP), CrossAmerica Partners LP (CAPL), and StealthGas Inc. (GASS).

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ORLY shares were trading at $866.69 per share on Monday afternoon, up $17.71 (+2.09%). Year-to-date, ORLY has gained 2.68%, versus a 7.52% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...

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