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O'Reilly Automotive (ORLY) Up 19.1% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for O'Reilly Automotive, Inc. (ORLY - Free Report) . Shares have added about 19.1% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is ORLY 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 drivers.

O'Reilly Beats on Q1 Earnings, Meets Sales, Lifts View

O’Reilly earnings per share in first-quarter 2018 jumped around 28% year over year to $3.61. The figure also beat the Zacks Consensus Estimate of $3.59. Net income improved 15% to $305 million (13.4% of sales) in first-quarter 2018 from $265 million (12.3% of sales) recorded in the year-ago period.

The company’s quarterly sales rose 6% year over year to $2.28 billion, mainly driven by 3.4% growth in store sales. In the year-ago quarter, store sales had recorded an increase of just 0.8%. The revenue figure in the first quarter came in line with the Zacks Consensus Estimate.

Gross profit went up 6% to $1.20 billion (52.6% of sales) from $1.13 billion (52.5% of sales) reported in the year-earlier quarter. Selling, general and administrative expenses were up 7% year over year to $778 million (34.1% of sales) from $728 million (33.8% of sales). Operating income increased 5% to $423 million (or 18.5% of sales) from $403 million (or 18.7% of sales) reported a year ago.

Store Information

During the first quarter, O’Reilly opened 78 stores. Total store count was 5,097 as of Mar 31, 2018. Sales per weighted-average store increased to $447,000 from $440,000 in first-quarter 2017.

Share Repurchases

During the reported quarter, O’Reilly repurchased 2.2 million shares for $549 million, reflecting an average price of $251.08 per share. Subsequent to the end of the quarter, the company purchased additional 0.4 million shares, for an investment of $87 million.

Since the company’s share-repurchase program inception in January 2011, O’Reilly has repurchased 68.8 million shares, for $9.67 billion, indicating an average price of $140.55 per share.

Financial Position

O’Reilly reported cash and cash equivalents of $38.5 million at the end of the first quarter, up from $27.5 million at the end of the year-ago quarter. Its long-term debt increased to $3.19 billion as of Mar 31, 2018, compared to $1.98 billion as of Mar 31, 2017.

The company generated $432.3 million in cash from operating activities during the quarter compared with $376.7 million recorded in the prior-year period. Capital expenditures increased to $114.8 million in the reported quarter from $110.6 million in the year-ago quarter. At the end of the first quarter, its free cash flow also improved to $311.1 million from $242.8 million witnessed in the year-ago period.

Guidance

For second-quarter 2018, O’Reilly projects diluted earnings per share of $3.95-$4.05. The company expects consolidated comparable store sales to climb 2-4% in the second quarter.

For full-year 2018, O’Reilly raised its earnings per share outlook to $15.3-$15.4 from $15.1-$15.2. The company, however, reiterated total revenue guidance at $9.4-$9.6 billion for the year. It also reaffirmed the consolidated comparable store-sales growth of 2-4% and gross margin view of 52.5-53% for 2018. It also confirmed the operating margin outlook of 18.5-19%.

Further, O’Reilly maintained its capital expenditure range of $490-$520 million. Also, for 2018, the company kept its free cash flow view unchanged between $1.1 billion and $1.2 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been seven revisions higher for the current quarter compared to two lower.

VGM Scores

At this time, ORLY has a nice Growth Score of B. Its Momentum is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 primarily suitable for momentum investors while also being suitable for those looking for growth and to a lesser degree value.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Interestingly, ORLY has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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