How O’Reilly’s Valuation Multiples Are Trending in 1Q18



O’Reilly’s valuations

Valuation multiples are commonly used in the automotive and auto parts retail industry to compare different businesses entities. O’Reilly Automotive’s (ORLY) valuation multiples can be compared with its peers AutoZone (AZO) and Advance Auto Parts (AAP).

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ORLY’s forward valuation multiples

As of February 9, 2018, O’Reilly Automotive’s forward EV-to-EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortization) multiple was 11.9x. In comparison, the forward EV-to-EBITDA multiples of its peers Advance Auto Parts and AutoZone were lower at 8.9x and 9.7x, respectively.

At the same time, O’Reilly Automotive’s forward PE (price-to-earnings) multiple was 16.5x. This was also much higher than AZO’s forward PE multiple of 13.7x but lower than AAP’s 16.9x.

These valuation multiples are calculated are based on analysts’ consensus estimates for respective companies’ next-12-months earnings.

In comparison, the valuation multiples of automakers (FXD) such as General Motors (GM) and Fiat Chrysler (FCAU) trade much lower than these auto parts sellers.

Important factors in 1Q18

As we noted earlier in this series, unlike the automaking business, auto parts retailing requires relatively lower investment requirements to drive future growth. This fact lowers O’Reilly Automotive’s risk profile, which could favor its valuation.

However, ORLY’s declining same-store sales growth rate and stagnation in profit margins could lower its future earnings growth estimates. Therefore, continued weakness in same-store sales and profit margins could negatively affect its multiples in the coming months.

Read on to the final part of this series to see what Wall Street analysts are recommending for O’Reilly Automotive stock after its 4Q17 earnings results.


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