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3 Reasons Deutsche Bank Downgraded Industry Leader O'Reilly Automotive

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3 Reasons Deutsche Bank Downgraded Industry Leader O'Reilly Automotive

Deutschse Bank downgraded shares of O'Reilly Automotive Inc (NASDAQ: ORLY) and lowered its price target, citing three reasons.

No. 1: Do-It-Yourself Undos

Although analyst Mike Baker believes the company will remain the leader in both comps and operating margins, he thinks the incremental competition in the DIY side of the business could limit earnings and revenue beats.

The analyst clarified that Amazon.com, Inc. (NASDAQ: AMZN) has about 6.2 percent of the $54 billion DIY auto parts after-market industry. If O'Reilly strives to match Amazon's lower prices, the analysts think there could be an issue with gross margins.

No. 2: Headwinds Abound

Secondly, the firm noted that several bigger picture trends, including miles driven and vehicle aging, are either turning less positive or could be acting as headwinds in the space.

No. 3: Valuation Loses Appeal

Thirdly, the firm sees less upside from current levels, as the earnings per share growth slows, given that the stock is already above valuation.

The rating on the shares of O'Reilly goes to Hold from Buy, while the price target is reduced to $273 from $315, based on a still healthy multiple of 20 times the estimated earnings per share for 2018.

At the time of writing, O'Reilly shares were sliding 2.25 percent to $263.23.

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Latest Ratings for ORLY

DateFirmActionFromTo
Nov 2019Initiates Coverage OnNeutral
Oct 2019MaintainsNeutral
Oct 2019MaintainsEqual-Weight

View More Analyst Ratings for ORLY
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