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Analyst Blog

On Dec 23, 2013, we reiterated our Neutral recommendation on O'Reilly Automotive Inc. (ORLY - Analyst Report).

Why the Reiteration?

O’Reilly posted a 28% increase in earnings to $1.69 per share in the third quarter of 2013 compared with $1.32 in the year-ago quarter. Earnings also exceeded the Zacks Consensus Estimate by 4 cents. Net income improved 17% to $186.5 million (10.8% of sales) from $159.3 million (9.9%) in the third quarter of 2012.

For full-year 2013, the company raised its earnings per share guidance to the range of $5.91 to $5.95 from the earlier range of $5.79 to $5.89. O’Reilly expects consolidated comparable store sales to increase between 3.5% and 4.5% during the year.

O’Reilly aggressively pursues the opening of new stores for greater penetration in existing markets and to expand into new, contiguous markets. During the first nine months of 2013, O’Reilly opened 163 stores and closed 4 stores.

Moreover, O’Reilly pursues an aggressive share repurchase policy, which continues to boost earnings per share. During the first nine months of 2013, the company repurchased 6.5 million shares for $687 million.

However, much of O’Reilly’s cash is locked in inventories while its debt position has deteriorated. Moreover, the company’s stores are concentrated in a few locations in the U.S. Therefore, its business is sensitive to the economic and weather conditions of those regions.

Further, the analysts covering O’Reilly did not revise their estimates in the last 30 days. Based on these positive and negative factors, we maintain a Neutral recommendation on the stock.

O'Reilly is a prominent player in the automotive replacement parts and accessories industry along with Advance Auto Parts Inc. (AAP - Analyst Report), AutoZone Inc. (AZO - Analyst Report) and CarMax Inc. (KMX - Analyst Report). The company currently carries a Zacks Rank #3 (Hold).

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