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O'Reilly (ORLY) to Gain From Store Expansion & Stable Economy

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On Jan 21, we issued an updated research report on O'Reilly Automotive, Inc. ORLY.

The specialty auto parts retailer is poised to benefit from store openings and distribution centers in profitable regions. Apart from opening stores in new markets, the company is actively increasing its store count in less-populated areas. O'Reilly’s penetration in new and contiguous markets will help its business to grow in markets across the country.

In 2018, the company had a target to open 200 stores across 33 different states. Following the same growth strategy, O'Reilly targets to open 200-210 stores in the current year, balancing between growing markets and matured ones.

O'Reilly Automotive, Inc. Price and Consensus

The company’s store expansion is backed by a strong distribution network that provides O’Reilly a competitive edge over its peers. Further, it has been making investments to expand its distribution centers that are likely to support its continued store growth. Further, O’Reilly’s wide-ranging product portfolio caters to Do-it-Yourself (DIY) and Do-it-for-Me (DIFM) customers, which is driving comparable store sales growth. In fact, this has encouraged O’Reilly to raise its 2018 guidance for comparable store sales to 3-4% from 2-4% mentioned earlier. For 2018, it anticipates earnings per share of $15.95-$16.05.

Apart from robust demand, the company is expected to gain from economic stability, and improved aging of average cars. For fourth-quarter 2018, it expects earnings per share of $3.6-$3.7, whereas comparable store sales are expected to be 2-4%. O’Reilly is scheduled to report quarterly and full-year results on Feb 6.

Despite such soaring demand, O’Reilly is expected to experience a slump in profit margins, owing to tariff-related raw material costs in 2018. The same pressure on the profit margin is likely to continue in 2019 as well, owing to tariffs on commodities imported to the United States. Further, wage pressure, freight costs and fuel expenses are other headwinds for O’Reilly. For 2018, this specialty parts retailer expects capital expenditure of $490-$520 million, marking an increase from $466 million recorded in 2017.

Over the past 60 days, the Zacks Consensus Estimate for O’Reilly’s annual earnings has moved 0.12% upward. Shares of the company rose 17.3% compared with the industry’s 8.7% increase in the past six months.


Zacks Rank & Other Stocks to Consider

O’Reilly currently carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the broader auto sector are Magna International Inc. (MGA - Free Report) , Genuine Parts Company GPC and General Motors Company GM. Magna and Genuine Parts presently carry a Zacks Rank #2 while General Motors sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Magna has an expected long-term growth rate of 8.5%. Share price of the company has increased 3.8% in the past three months.

Genuine Parts has an expected long-term growth rate of 5%. Over the past month, shares of the company have gained 6.6%.

General Motors has an expected long-term growth rate of 8.5%. Shares of the company have gained 20.2% in the past three months.

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