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Shares of O'Reilly Automotive to hit $300 mark in medium term

I remain upbeat about the shares of O'Reilly Automotive, one of the US largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories. The company’s financials for the second quarter of 2016 were decent. Revenues went up 7% y-o-y to $2.18 bn, but fell marginally short of the consensus estimate of $2.19 bn. The improvement was driven by same-store sales growth of 4.3%. Operating income rose 10% to $425 mn, and operating margin expanded 50 basis points to 19.5%. Adjusted earnings per share jumped 16% to $2.65 missing analysts’ average projection by 2 cents.

O'Reilly ended Q2 with cash and cash equivalents of $398.3 mn and long-term debt of about $1.9 bn. In the first half of 2016, the company generated operating cash flow of $798.4 mn (up 14.3% y-o-y) and spent $218.4 mn on capex. O'Reilly also repurchased 3.3 mn shares $857 mn in the first half of the year and, as of the end of June, had approximately $782 mn remaining under its current share repurchase authorizations.

During the first half of 2016, O’Reilly opened 89 stores (net) across the country and, as of June 30, operated 4,660 stores in 44 states. In Q2, sales per weighted average-store increased to $466,000 from $454,000 in the year-ago quarter.

O'Reilly’s management maintained its optimistic outlook for 2016. The company anticipates annual revenues in the band of $8.4-8.6 bn, and operating margin is expected to be 19.5-19.9%. Same store sales are projected to increase 3-5%. O'Reilly also lifted its 2016 EPS guidance to $10.30-10.70 from $10.10-10.50 estimated earlier. The company also plans to open 210 stores (net) in 2016.

I expect that O'Reilly’s shares will continue to rise and hit $300 mark in medium term.

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