On Thursday, O'Reilly Automotive (NASDAQ:ORLY) stock maintained its Equalweight rating according to Morgan Stanley (NYSE:MS), but saw its shares target increase to $1,100 from the previous target, reflecting a positive adjustment in valuation multiples.
The firm's analysis suggests that market share leaders in the auto parts retail sector are garnering higher valuation premiums, which has influenced the adjustment of the price target.
The decision to raise the price target by approximately 9% is based on a shift in the target multiple from roughly 19.5 times forward-year two earnings per share (FY2 P/E) to approximately 21 times. This change is attributed to O'Reilly Automotive's strong market position and its ability to attract a greater valuation premium relative to its peers.
Morgan Stanley's stance on the stock remains cautious, with the firm indicating that it has been on the lookout for a more attractive entry point into O'Reilly Automotive's shares. The expectation was that such an opportunity might arise in 2024 due to a potential slowdown in demand.
However, the resilience of the auto parts retail sector, coupled with O'Reilly's superior execution, has led to an expansion in the company's forward-year two price-to-earnings ratio by about 16% over the past six months.
Despite this expansion in the valuation multiple, O'Reilly Automotive's earnings per share (EPS) estimates have been slightly reduced by approximately 1% since the beginning of the year 2024. This indicates that while the company's stock valuation has increased, there's a recognition of some pressure on its earnings outlook.
The firm's analysis underscores the balance of risk and reward in the current valuation of O'Reilly Automotive, suggesting that while there are positive factors at play, investors should also be mindful of potential challenges ahead.
In other recent news, O'Reilly Automotive has been a focal point of analysts' attention following its Q2 earnings report and revised full-year 2024 guidance.
The auto parts retailer reported Q2 earnings per share (EPS) of $10.55, falling short of the estimated $10.83. For 2024, the company expects EPS to range from $40.75 to $41.25 and comparable store sales growth between 2% and 4%.
Evercore ISI boosted its price target for the company to $1,230, maintaining an Outperform rating. Wells Fargo (NYSE:WFC) raised O'Reilly's price target to $1,250, while Jefferies increased the price target to $1,260. However, RBC Capital reduced its price target to $1,115, all maintaining their respective positive ratings.
In addition to these developments, O'Reilly Automotive secured $500 million in senior notes, providing the company with additional capital for potential business expansion or refinancing existing debt.
The company also continues to expand, opening 37 new stores in the United States and Mexico, and entering the Canadian market through the acquisition of Vast Auto. These are among the recent developments at O'Reilly Automotive.
InvestingPro Insights
In light of Morgan Stanley's updated valuation on O'Reilly Automotive (NASDAQ:ORLY), real-time data from InvestingPro offers additional context for the company's financial health and market performance. With a robust market capitalization of $66.02 billion and a trailing twelve-month revenue of $16.28 billion, reflecting a healthy growth of nearly 7%, O'Reilly Automotive demonstrates significant scale and upward momentum in its financials.
InvestingPro Tips highlight that O'Reilly Automotive is trading at a high P/E ratio of 28.44, which is slightly above the adjusted P/E for the last twelve months as of Q2 2024, suggesting a premium valuation in the market. Additionally, the company's stock is known for low price volatility, which might appeal to investors seeking stability. Yet, it's important to note that the company's short term obligations exceed its liquid assets, which may require careful financial management.
For investors considering the stock, O'Reilly Automotive's strong return over the last five years and the prediction of profitability for this year are encouraging signs. Furthermore, the stock is trading near its 52-week high, with a price that is 97.35% of the peak, indicating investor confidence. For a deeper dive into O'Reilly Automotive's performance and additional InvestingPro Tips—18 in total, including insights on debt levels and cash flow coverage—interested parties can visit https://www.investing.com/pro/ORLY.
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