O’Reilly Automotive, Inc. (NASDAQ: $ORLY) is one of the largest specialty retailers in the US, selling automotive aftermarket parts, tools, supplies, equipment, and accessories. Founded in 1957 by the O’Reilly family, it serves both DIY and professional service provider markets across 48 U.S. states, Puerto Rico, Canada, and Mexico, operating 6,157 stores as of the end of 2023.
O’Reilly has been on an impressive run recently, delivering strong financial results quarter after quarter. The company’s most recent earnings report, covering the fourth quarter and full year 2023, was no exception, with O’Reilly reporting record revenue and earnings. However, compared to competitors and the broader market, the stock underperformed on Thursday, April 11.
Financial Highlights
For the fourth quarter of 2023, O’Reilly reported sales of $3.83 billion, a 5% increase from the same period a year earlier. Gross profit rose 6% to $1.97 billion, while operating income grew 5% to $719 million. Net income increased 5% to $553 million, with diluted earnings per share climbing 11% to $9.26.
O’Reilly’s performance was even more impressive for the full year. Annual sales reached a record $15.81 billion, up 10% from 2022. Gross profit rose 10% to $8.10 billion, while operating income increased 8% to $3.19 billion. Net income for the year grew 8% to $2.35 billion, with diluted earnings per share surging 15% to $38.47.
CEO Brad Beckham credited the company’s strong results to O’Reilly’s “relentless focus on providing the highest levels of service in the industry.” He noted that the team delivered another year of “exceptional, profitable growth,” highlighted by a 7.9% increase in comparable store sales and the successful opening of 186 new stores.
O’Reilly recently announced that it will release its first quarter 2024 earnings results on April 24, 2024, after 3:30 p.m. Central Time, followed by a conference call on April 25, 2024, at 10:00 a.m. Central Time.
Favorable Industry Trends
The automotive aftermarket industry has experienced some volatility in recent years, with shifts in consumer preferences and supply chain challenges. However, O’Reilly appears well-positioned to navigate these changes and continue its growth trajectory.
The company has benefited from a surge in demand for hybrid and traditional internal combustion engine vehicles, as consumers have become more hesitant to embrace the higher costs and limited charging infrastructure of electric vehicles. This trend has driven increased sales of parts and services.
Its diversified customer base, with a mix of do-it-yourself and professional service provider clients, has helped insulate it from shifts in any one segment. O’Reilly has continued to gain market share by providing excellent customer service and a comprehensive product offering.
Expansion into New Markets
O’Reilly’s growth strategy has also included strategic expansion into new geographic markets. In January 2024, it acquired Groupe Del Vasto, a Canadian automotive parts retailer. This move will allow O’Reilly to leverage its operational expertise and customer-centric approach to drive growth in the Canadian market.
The company’s full-year 2024 guidance indicates that it expects to open between 190 and 200 new stores, further extending its footprint across North America. O’Reilly also plans to continue investing in its infrastructure, with capital expenditures projected to range from $900 million to $1 billion in 2024.
Full-Year 2024 Guidance
Looking ahead, O’Reilly is forecasting continued strong performance in 2024. The company expects comparable store sales growth of 3% to 5%, with total revenue of $16.8 billion to $17.1 billion. Gross profit margin is expected to be 51.0% to 51.5%, with an operating income margin of 19.7% to 20.2%.
Diluted earnings per share for 2024 are projected to be $41.05 to $41.55, representing continued double-digit growth. Additionally, O’Reilly expects to generate a free cash flow of $1.8 billion to $2.1 billion, providing ample resources for further investments and shareholder-friendly initiatives.
The company’s shares currently trade multiple times the midpoint of the 2024 earnings guidance, a valuation reflecting the market’s confidence in O’Reilly’s ability to sustain its impressive growth trajectory. Analysts covering the stock have a consensus price target of $1,107.
O’Reilly Automotive Stock Performance
O’Reilly Automotive’s stock price closed at $1,083.00 on April 11, 2024, down 0.92% from the previous trading session. The stock had a mixed performance when compared to its competitor AutoZone, which fell 0.63%, and Advance Auto Parts (AAP), which fell 4.31% during the trading session. Compared to the broader market, the stock underperformed, with the SPX rising 0.74% and the DJIA falling 0.01%. On Friday, April 12, the stock was down 0.28% from its Thursday closing price at $1,080.02 per share as of 11:17 AM EDT.
Over the past four years, O’Reilly’s stock has climbed from a low of $251.52 during the COVID-19 market crash in March 2020 to an all-time high of $1,169.11 reached on March 21, 2024, representing a remarkable appreciation of approximately 340%. The stock’s current valuation reflects the market’s confidence in O’Reilly’s ability to sustain its impressive growth trajectory and capitalize on favorable trends in the automotive aftermarket industry.
Should You Consider Investing in O’Reilly Automotive’s Stock in 2024?
O’Reilly Automotive’s strong financial performance, favorable industry outlook, and strategic growth initiatives make it an attractive investment prospect for 2024. The company’s strong earnings growth, expanding store footprint, and ability to navigate industry challenges suggest it is well-positioned to continue its impressive run.
The stock appears reasonably priced, especially given the company’s sustained profit growth in recent years. Analysts’ consensus price target of $1,107 implies a potential upside from current levels. O’Reilly Automotive’s proven business model and compelling growth story warrant consideration as a long-term holding for investors seeking exposure to the resilient automotive aftermarket sector.
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