O’Reilly Automotive (ORLY) is a leading retailer in the automotive aftermarket industry, based in Springfield, Michigan, notes David Fried, editor of The Buyback Letter.

It has a balance of DIY (do it yourself) and DIFM (do it for me) business, with products for domestic and imported cars, vans and trucks.

At the end of 2020, ORLY operated 5,616 stores, with some 77,000 employees. It opened 156 net new stores in 2020, and has plans to open roughly 170 this year. It’s also expanding into Mexico, where it now has 22 locations.

It’s a favored stock right now because as the U.S. takes steps to recover from the pandemic, auto parts retailers are looking sweet. Think about it — mobility increases nationwide as people get vaccinated, and they want to travel. The total mileage driven by drivers is starting to pick up as people come out of a year’s hibernation.

Cars will need non-discretionary maintenance, and retailers such as O’Reilly can pass along whatever costs of inflation might be present, and still make a profit. They have pricing power, and the demand for ORLY’s products is recession-resilient.

Also, as the third round of stimulus checks arrives in bank accounts, consumers may feel even more confident in making long-needed automotive repairs.

O’Reilly was a winner last year despite the pandemic’s disruption. Revenue rose only 2.7% in Q1 2020, but it took off in Q2 (19.4%), Q3 (20.3%), and Q4 (13.9%), which led to a record-breaking year for the company.

And 2020 was the 28th consecutive year that O'Reilly boasted comparable sales growth, which demonstrates the company's long history of success, no matter the state of the overall economy.

ORLY has a great record of positive earnings surprises. In its last earnings report April 28, it showed EPS of $7.06 vs. a consensus estimate of $5.36.

For the current fiscal year, ORLY is expected to post earnings of $24.05 per share on $12.01 billion in revenues. This represents a 2.21% change in EPS on a 3.47% change in revenues.

For the next fiscal year, the company is expected to earn $27.14 per share on $12.46 billion in revenues. This represents a year-over-year change of 12.83% and 3.78%, respectively.

Q1 numbers were good, with comparable store sales showing an increase of 24.8%, and a 63% increase in operating income. Sales for the first quarter increased $614 million, or 25%, to $3.09 billion from $2.48 billion for the same period one year ago. Gross profit increased 27% to $1.64 billion (or 53.1% of sales) from $1.30 billion (or 52.3% of sales) for the same period one year ago.  

Share repurchases during Q1 were 1.5 million shares ($665 million). In the last 12 months, management has reduced shares outstanding by 4.244%.  

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