On Thursday, BofA Securities expressed confidence in O'Reilly (NASDAQ:ORLY) Automotive (NASDAQ: ORLY), adjusting the stock's price target to $1,360 from $1,290. The firm maintained a Buy rating on the shares, despite the company reporting mixed results for the third quarter. O'Reilly Automotive's earnings per share (EPS) came in at $11.41, falling short of the consensus estimate of $11.54. Comparable store sales growth also did not meet expectations, registering at 1.5% compared to the anticipated 2.5%.
The lower-than-expected comparable store sales growth was attributed to widespread consumer pressures and a subdued demand environment impacting both professional (Pro) and do-it-yourself (DIY) customer segments. The company experienced a deceleration in sales across both divisions, with Pro sales increasing by 6.1%, down from 7.9% in the second quarter, and DIY sales growing by a modest 0.4%, a decrease from the 0.9% growth seen previously.
O'Reilly Automotive did see a slight improvement in gross margins, which expanded by 18 basis points to 51.6% compared to 51.4% in the third quarter of 2023. However, selling, general and administrative (SG&A) expenses deleveraged by 98 basis points to 31.0% from 30.1%. The company's expansion into Canada also impacted margins, contributing to a 26 basis point dilution on gross margin.
Despite these challenges, O'Reilly Automotive continued its expansion efforts, opening 35 new stores in the United States, 9 in Mexico, and 3 in Canada during the third quarter. The company remains on track to achieve its goal of opening between 190 to 200 net new stores within the year. Looking ahead, O'Reilly Automotive has announced plans to open between 200 to 210 net new stores in 2025.
In other recent news, O'Reilly Automotive reported third-quarter earnings and revenue that did not meet analyst expectations. The auto parts retailer posted adjusted earnings per share of $11.41, falling short of the consensus estimate of $11.54, while revenue came in at $4.36 billion, which was below analysts' projections of $4.43 billion. Despite these results, the company reported a 4% YoY increase in revenue and a 1.5% growth in comparable store sales. Jefferies maintained its Buy rating on O'Reilly Automotive, pointing to the company's solid cash flow, while DA Davidson also reaffirmed its Buy rating.
In response to these developments, O'Reilly Automotive has revised its full-year comparable store sales guidance to 2-3% from the previous range of 2-4%. The company now expects fiscal 2024 earnings per share between $40.60 and $41.10, and full-year revenue is projected at $16.6-16.8 billion. Despite the challenging quarter, O'Reilly Automotive reported continued market share gains in its professional business and opened 47 new stores across its operations in the U.S., Mexico, and Canada. The company also repurchased $541 million worth of its stock in the third quarter.
InvestingPro Insights
Despite the mixed third-quarter results reported by O'Reilly Automotive (NASDAQ: ORLY), recent data from InvestingPro suggests the company maintains a strong financial position. As of the last twelve months ending Q2 2024, O'Reilly's revenue stood at $16.28 billion, with a revenue growth of 6.99%. The company's operating income margin was robust at 19.86%, indicating efficient operational management despite the challenges in comparable store sales growth.
InvestingPro Tips highlight that O'Reilly has been profitable over the last twelve months and analysts predict continued profitability this year. This aligns with the company's expansion plans and BofA Securities' maintained Buy rating. Additionally, O'Reilly's stock is trading near its 52-week high, reflecting investor confidence despite the recent mixed results.
It's worth noting that O'Reilly's P/E ratio stands at 30.09, which InvestingPro Tips suggest is high relative to near-term earnings growth. This could be a point of consideration for investors evaluating the stock's current valuation in light of the company's recent performance and future growth prospects.
For readers interested in a deeper analysis, InvestingPro offers 13 additional tips for O'Reilly Automotive, providing a more comprehensive view of the company's financial health and market position.
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