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  • Shares of O'Reilly Automotive Inc (NASDAQ: ORLY), AutoZone, Inc. (NYSE: AZO) and Advance Auto Parts, Inc. (NYSE: AAP) have plunged over the past 5 trading days.
  • Credit Suisse’s Seth Sigman maintained Outperform ratings for O’Reilly and Advance Auto, with price targets of $290 and $185, respectively. The price target for AutoZone has been raised to $750.
  • Despite the road being bumpy, Sigman views the recent pullback in shares as providing attractive buying opportunities.

“We remain constructive on the auto parts retail segment, particularly in light of the current macro uncertainty,” analyst Seth Sigman said. He added that the recent sell-off in shares provides “attractive buying opportunities.”

Sigman believes that O’Reilly and AutoZone are the “best way to play the group,” while there still seems to be some near-term risk to the Advance Auto Parts story.


There is upside to O’Reilly’s Q4 results, scheduled to be announced this week. Sigman added that expectations were moving higher and the company’s guidance is typically conservative. However, the 12 percent decline in O’Reilly’s shares over the past couple of days makes the stock more attractive, especially in view of “the momentum in this business.”

The analyst wrote, “As the dust settles and investors revisit the sector, we believe this best in class stock should benefit.”

Advance Auto Parts

Expectations are for a Q4. The focus is on 2016 and comments on whether the company can deliver on the synergy targets.

Sigman pointed out that Advance Auto Parts would need to deliver 75 percent of its synergy targets, while keeping the base business “relatively stable” in order to meet the current consensus expectations, which reflect 11.4 percent EBIT margins, versus the company’s prior target of 12 percent.

“Beyond the synergies, the company will need to lay out steps to improve its commercial business and create a more integrated supply chain network that will provide additional cost efficiencies while also improving inventory management to better serve its customers,” the Credit Suisse report noted.

The EPS estimates for 2015 and 2016 have been reduced to $7.81 and $8.86, respectively.


“We view AZO as a good way to play the space, with potentially meaningful potential upside to its commercial business over the next two to three years as a result of specific supply chain initiatives and the maturing of its commercial programs,” Sigman commented.

In the near term the company is poised to benefit from “a potentially stronger DIY customer, as well as from certain disruptions across the sector.” Continued investments may limit EPS upside. However, AutoZone

Seems to be on a “relatively steady path” to continue to generate mid-teens EPS growth, Sigman mentioned. Margins could improve from the Q1 levels, as the company offsets its higher distribution costs.

The EPS estimates for 2015 and 2016 have been raised to $40.69 and $45.22, respectively.

Latest Ratings for ORLY

Dec 2017RBC CapitalUpgradesSector PerformOutperform
Dec 2017Moffett NathansonInitiates Coverage OnBuy
Oct 2017CitigroupMaintainsBuy

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Posted-In: Credit Suisse Seth SigmanAnalyst Color Long Ideas Price Target Reiteration Analyst Ratings Trading Ideas


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