O’Reilly Automotive Inc Valuation – July 2016 $ORLY

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how O’Reilly Automotive Inc (ORLY) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): O’Reilly Automotive, Inc. is a specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States. The Company offers its products to both do-it-yourself (DIY) and professional service provider customers. Its stores’ product line includes new and remanufactured automotive hard parts, such as alternators, starters, fuel pumps, water pumps, brake system components, batteries, belts, hoses, temperature control and engine parts; maintenance items, such as filters, lighting, engine additives and appearance products, and accessories, such as floor mats, seat covers and truck accessories. It offers various services and programs to its customers, such as used oil, oil filter and battery recycling; battery diagnostic testing; loaner tool program; custom hydraulic hoses; professional paint shop mixing and related materials, and machine shops. Its brands include BestTest, BrakeBest, Precision, Import Direct, Master Pro, Micro-Gard and Murray.

ORLY Chart

ORLY data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of ORLY – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $26,683,131,284 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.12 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 401.12% Pass
6. Moderate PEmg Ratio PEmg < 20 32.17 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 13.92 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.12 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.89 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

ORLY value chart July 2016

EPSmg $8.52
MG Growth Estimate 15.00%
MG Value $327.92
Opinion Fairly Valued
MG Grade D
MG Value based on 3% Growth $123.50
MG Value based on 0% Growth $72.40
Market Implied Growth Rate 11.83%
Current Price $273.97
% of Intrinsic Value 83.55%

O’Reilly Automotive Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.56 in 2012 to an estimated $8.52 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 11.83% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

O’Reilly Automotive Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

ORLY charts July 2016

Net Current Asset Value (NCAV) -$18.05
Graham Number $68.67
PEmg 32.17
Current Ratio 1.12
PB Ratio 13.92
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $3,701,463,000
Total Current Liabilities $3,315,677,000
Long-Term Debt $1,885,877,000
Total Assets $7,419,773,000
Intangible Assets $757,130,000
Total Liabilities $5,479,932,000
Shares Outstanding (Diluted Average) 98,537,000

Earnings Per Share History

Next Fiscal Year Estimate $10.45
Dec2015 $9.17
Dec2014 $7.34
Dec2013 $6.03
Dec2012 $4.75
Dec2011 $3.71
Dec2010 $2.95
Dec2009 $2.23
Dec2008 $1.48
Dec2007 $1.67
Dec2006 $1.55
Dec2005 $1.45
Dec2004 $1.26
Dec2003 $0.92
Dec2002 $0.77
Dec2001 $0.63
Dec2000 $0.50
Dec1999 $0.46
Dec1998 $0.36
Dec1997 $0.27
Dec1996 $0.23

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $8.52
Dec2015 $7.10
Dec2014 $5.70
Dec2013 $4.56
Dec2012 $3.56
Dec2011 $2.78
Dec2010 $2.20
Dec2009 $1.78
Dec2008 $1.53
Dec2007 $1.49
Dec2006 $1.33
Dec2005 $1.15
Dec2004 $0.93
Dec2003 $0.73
Dec2002 $0.61
Dec2001 $0.50
Dec2000 $0.41

Recommended Reading:

Other ModernGraham posts about the company

O’Reilly Automotive Inc. Annual Valuation – 2015 $ORLY
16 Companies in the Spotlight this Week – 4/19/14
O’Reilly Automotive Inc. (ORLY) Annual Valuation – 2014

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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