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Tap the Booming Auto Retail Parts Market With O'Reilly (ORLY)

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The auto retail industry is on a roll, thanks to increasing demand for vehicles amid preference for private transportation and economic growth. Thanks to unprecedented fiscal stimulus and stepped-up vaccination drive, the economy is soaring and consumer spending is on the rise, with Americans being way more confident to make discretionary purchases. 

U.S. auto sales continued to gather steam in second-quarter 2021, thanks to easier credit conditions, bullish consumer sentiment, soaring popularity of electric vehicles and rapid digitization. With millions of Americans now fully vaccinated, more people are expected to go out and the momentum in vehicle demand is likely to continue. While the average prices of cars are on the rise amid chip crunch, demand is still accelerating, which is likely to result in higher profits for retailers.

Amid the rosy prospects of the industry, O'Reilly Automotive (ORLY - Free Report) appears to be an interesting choice for investors. O’Reilly’s revenue growth is impressive. The specialty retailer of automotive aftermarket parts has been generating record revenues for 28 consecutive years on the back of stable growth in the auto parts market and expansion of the store base. In addition to opening stores in new markets, the company has been actively increasing store count in less-populated areas. It opened 68 new stores during first-quarter 2021, bringing the total store count to 5,682 as of Mar 31, 2021. O'Reilly’s penetration in new and contiguous markets will help in business growth in markets across the country. The firm’s buyout of Mayasa Auto Parts bodes well and marks O’Reilly’s first international expansion transaction.

The company has a competitive edge due to the dual-market strategy and a strong distribution network. O’Reilly’s wide-ranging product portfolio caters to DIY (“Do-It-Yourself”) and DIFM (“Do-it-for-Me”) customers, which are driving comparable store sales growth. The company delivered exceptional comps sales growth and EBIT performance in the last reported quarter due to robust demand for DIY-based projects, market share gains as well as elimination of maintenance deferrals. 

Moreover, growing demand for technologically advanced auto parts is likely to drive O’Reilly’s prospects. Increased complexity of auto parts and repairs is driving more people to independent repair shops. Thus, as cars as getting more technologically advanced, high-quality auto parts are much in demand, which are likely to bolster O’Reilly’s sales and earnings in the future.

Year to date, the stock have increased 28.5%, surpassing the industry and S&P 500’s growth of 21.8% and 16.8%, respectively. The company has significantly outperformed the auto sector, which has lost 1.8% during the same time period.

Year-to-Date Performance

Zacks Investment ResearchImage Source: Zacks Investment Research

O’Reilly — which shares space with Advance Auto parts (AAP - Free Report) , AutoZone (AZO - Free Report) and CarMax (KMX - Free Report) — currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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