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O’Reilly’s Earnings Soar 28%

February 27, 2013 | About:

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I use stock filters and alerts to try to identify value stocks and growth stocks on reasonable valuations (Where to find growth stocks). For growth stocks I look for consistent growth over the past three to five years, good growth in consensus EPS forecasts for the next two to five years and a decent valuation multiple (Don’t pay too much for growth). One such stock that recently reported full year earnings is O’Reilly Automotive Inc. More importantly it's one of a small number of stocks that has shown an ability to simultaneously grow margins and sales (Top 5 growth stocks).

O’Reilly is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the U.S. Founded in 1957 by the O’Reilly family, the company operated 4,000 stores in 42 states as of Jan. 19, 2013.

Similar to other automotive aftermarket parts and services providers, (AutoZone EPS soars 16%) O’Reilly has benefited from the increasing age of cars in the U.S. as people have chosen to repair rather than replace their vehicles. The average age of cars was 10.8 years in 2011 compared to 10.6 years in 2010 and 8.4 years in 1995. This upward trend has been consistent in every year since 1995 and continued in 2011 despite an overall 500,000 increase in the total number of vehicles on the road.

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Sales for the year ended Dec. 31, 2012, increased 7% to $6.18 billion while net income increased 15% to $586 million. Comparable store sales increased 4.2% for the fourth quarter ended Dec. 31, 2012, versus 3.3% for the same period one year ago. Operating margins increased from 15% to 15.8%. Greg Henslee, president and CEO stated, “We are confident the fundamental drivers for demand in our industry remain intact and based on this continued demand, our guidance for 2013 comparable store sales is an increase in the range of 3% to 5%.”

An increasingly aging car fleet is a long-term trend that is likely to benefit O’Reilly and its peers’ sales, earnings and EPS even with a recent resurgence in new car sales. However, O’Reilly has consistently shown that it is better than its peers at converting strong industry dynamics into better margins and same store sales growth with 4.2% growth reported in 2012 and growth of 3% to 5% forecast for 2013. With a PEG ratio of around 0.77 some investors may continue to see value in O’Reilly. (How to value growth stocks)

Risk Disclaimer: This article does not constitute a recommendation to buy or sell. Investing in stocks or other securities and derivatives is a high risk activity and not suitable for everyone. It is advised that individuals should consult with their investment adviser prior to making any investment decisions. The above report includes information from third party web sites and the author cannot guarantee its accuracy, completeness or timeliness. It is strongly advised that all readers complete their own thorough research and analysis.

Disclosure: The author holds no positions in any of the above stocks and has no intention to initiate any in the next 72 hours.


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