ORLY - Embedded Expectations Analysis - 2020 07 20
O'Reilly Automotive, Inc. (ORLY:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) earnings, with a 25.2x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management appears concerned about end markets, their cost structure, and projectsSpecifically, management may lack confidence in their ability to grow long-term relationships with customers and gain market share, and may be exaggerating the resilience of the automotive aftermarket. They may also be concerned about their ability to continue to effectively manage their cost structure in the wake of coronavirus-driven sales pressure. They might also be concerned about the impact of certain project deferrals, as well as delays in the development schedules of new properties expected to open in 2020
O'Reilly Automotive is a retailer of automotive aftermarket parts, tools, supplies, equipment and accessories, selling its products to both do-it-yourself and service provider customers. The company's stores carry a product line, including: new and remanufactured automotive hard parts and maintenance items, such as alternators, batteries, brake system components, belts, chassis parts, driveline parts, engine parts, fuel pumps, hoses, starters, temperature control, water pumps, antifreeze, appearance products, engine additives, filters, fluids, lighting, oil and wiper blades; and accessories, such as floor mats, seat covers and truck accessories.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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