Solid Execution, Amazon-Proof Business Keeps O'Reilly's Earnings Engine Running Smooth

The better-than-expected fourth-quarter results of O'Reilly Automotive Inc ORLY once again demonstrated its solid execution, Amazon.com, Inc.AMZN-proof business model, increasing power over suppliers and limited weather sensitivity.

Following is a gist of the fourth-quarter results and outlook:

• Fourth-quarter EPS came in at $2.59 versus the estimated $2.54.
• Sales came in at $2.1 billion versus the estimated $2.09 billion.
• Q4 comps were up 4.8 percent versus the 4.4 percent estimate.
• Q1 EPS guidance of $2.78–$2.88 versus $2.92 estimate.
• Q1 comps guidance up 2–4 percent versus estimated 4.2 percent.
• Fiscal year 2017 EPS guide to $12.05–$12.15 versus $12.26 estimate.
• FY 2017 sales guide of $9.1 billion–$9.3 billion versus estimated $9.19 billion.
• FY 2017 comps guide of up 3–5 percent versus the 4.4 percent estimate.

Rating And Justification

Wedbush reiterated its Outperform rating on the shares after the auto parts retailer issued a solid outlook, with LIFO accounting provides high visibility to strong gross margin expansion.

“We believe CEO Greg Henslee has delivered nothing short of superb results in his tenure to-date; we also believe that the company is well positioned to continue delivering strong results,” analyst Seth Basham wrote in a note.

In particular, Basham views strong gross margin guidance as a source of confidence and visibility and expects to benefit from prior declines in product acquisition costs under LIFO accounting. In fact, Basham not only sees room for upside on gross margins, but also on SG&A given only an implied 0-20 bps of leverage.

On the lower-than-expected first quarter forecast, Basham said investors will look through this guidance, which is marred by tough comparisons and less favorable weather.

At last check, shares of O'Reilly were up 3.49 percent at $291.35. Basham has a price target of $310.