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Why Is O'Reilly Automotive (ORLY) Up 5.1% Since the Last Earnings Report?

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It has been about a month since the last earnings report for O'Reilly Automotive, Inc. (ORLY - Free Report) . Shares have added about 5.1% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

O'Reilly Beats Q2 Earnings Estimates, Cuts Outlook

O’Reilly reported adjusted earnings of $3.10 per share in the second quarter of 2017, beating the Zacks Consensus Estimate of $2.90. Net income improved 10% to $283 million (12.3% of sales) from $258 million (11.8% of sales) in the second quarter of 2016.

Quarterly revenues went up 5% to $2.29 billion from $2.18 billion a year ago. Revenues were almost on par with the Zacks Consensus Estimate. Comparable store sales increased 1.7% in the reported quarter compared with a 4.3% rise in the prior-year quarter.

Gross profit rose 3% to $1.2 billion (52.4% of sales) from $1.13 billion (51.8% of sales) a year ago. Selling, general and administrative expenses increased 6% year over year to $743 million (32.4% of sales) from $702 million (32.3% of sales). Operating income increased 8% to $457 million (or 20% of sales) from $425 million (or 19.5% of sales) a year ago.

Store Information

During the second quarter of 2017, O’Reilly opened 50 stores across the country and closed down four. Total store count was 4,934 as of Jun 30, 2017. Sales per weighted-average store decreased to $463,000 from $466,000 in the second quarter of 2016.

Share Repurchases

During the second quarter of 2017, O’Reilly repurchased 3.5 million shares for $852 million, reflecting an average price of $245.26 per share.

Since the inception of the share repurchase program in Jan 2011, O’Reilly has repurchased a total of 62.3 million shares for $8.20 billion, indicating an average price of $131.80 per share.

Financial Position

O’Reilly had cash and cash equivalents of $26.5 million as of Jun 30, 2017 compared with $398.3 million as of Jun 30, 2016. Long-term debt was $2.6 billion as of Jun 30, 2017 compared with $1.9 billion as of Jun 30, 2016.

In the second quarter of 2017, net cash flow from operations increased to $333.8 million from $325.6 million a year ago. Also, capital expenditures rose to $116.9 million from $116.4 million in second-quarter 2016. Free cash flow in the period was $207.8 million compared with $193.8 million in the second quarter of 2016.

Guidance

For the third quarter of 2017, O’Reilly projects earnings per share in the range of $3.10-$3.20.

The company expects consolidated comparable store sales to increase 1–3%.

For full-year 2017, the company expects earnings per share in the band of $11.77-$11.87 compared with the previous expectation of $12.05-$12.15.

O’Reilly projects consolidated comparable store sales increase in the range of 1-2% during the year. The company anticipates revenues in the band of $8.9-$9.1 billion compared with the previous expectation of $9.1-$9.3 billion. For 2017, the gross margin guidance is in the range of 52.5-52.9% and operating margin is expected to be 19.1-19.5% compared with the previous estimate of 20.1-20.5%.

O’Reilly reiterated its capital expenditure to be within the range of $470–$500 million. However, for 2017, it expects free cash flow to be between $830 million and $880 million compared with the range of $930-$980 million expected earlier.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

VGM Scores

At this time, the stock has a nice Growth Score of B, however its momentum is doing a bit better with an A. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for momentum investors than those looking for growth.

Outlook

The stock has a Zacks Rank #4 (Sell). We are expecting a below average return from the stock in the next few months.




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