O'Reilly Price Target Slashed 25% Amid Warning; Weather Just One Factor Pressuring Sales

Raining Cats And Dogs And Car Parts?

Wedbush's Seth Basham maintains a Neutral rating on O'Reilly's stock with a price target slashed from $260 to $195 after the company's pre-announcement Wednesday. While weather may have been one factor hurting sales in the quarter, the company also faced additional pressures from a slowdown in total miles driven growth and declines in miles driven in the "sweet spot" for 8+-year-old cars.

Other factors the analyst highlighted include a muted low-end and minority consumer confidence and rising competition from new online rivals (see Basham's track record here). The problem for O'Reilly moving forward is that none of these industrywide negative trends are expected to improve in the near term.

In addition, the auto parts retailer didn't mention its guidance, but two consecutive quarterly reports "well-below" expectations will likely prompt management to revise its full-year guidance sharply lower, the analyst added. In fact, management could slash its full-year comp expectations from a range of 3–5 percent to as low as 1–3 percent. In addition, full-year earnings per share could be also be slashed from a range of $12.05–$12.15 to a new range of $11.80–$11.90. Related Links: Auto Parts Stocks Are Getting Crushed Thanks To O'Reilly's Guidance Cut When The Bellwether Doesn't Ring: Here's Why The Auto Parts Plunge Didn't Affect Other Sectors

Bottom line, O'Reilly's valuation by default of a 20-percent drop makes the stock look more attractive, but it is too early to buy.