ORLY Stock Forecast: It’s Time To Think And Invest Like Warren Buffet

Gleb ZInkovskii_photo




The article was written by Gleb Zinkovskii, a Financial Analyst at I Know First.


“We believe the long-term drivers for demand in our industry remain intact, including a growing and aging vehicle fleet that is driven over three trillion miles each year; but more importantly, we are very confident in our ability to continue to gain market share by providing consistently high levels of service to our customers, and we are well positioned to build on the improved trends we drove in the first quarter.”

Mr. Henslee, former CEO of O’Reilly Automotive, Inc., acting Executive VC of the Board

[Image Source: By M.O. Stevens [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], from Wikimedia Commons]


  • ORLY stock fits into Warren Buffets 6 rules – gives chance to be a target stock
  • ORLY outperforms the market – TTM stock price gain of +4.45%, YTD gain of +8.17% and P/E ratio of 21.28
  • Leadership succession is finished in line with the earlier announcement – no surprises
  • Target leverage ratio is increased from 2.25 to 2.5 – still under market average

O’Reilly Automotive, Inc. (NASDAQ: ORLY), together with its subsidiaries, engages in the retail of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States. Its stores provide do-it-yourself and professional service provider customers a selection of brand name, house brands, and private label products for domestic and imported automobiles, vans, and trucks. As of December 31, 2017, the company operated 5,019 stores in 47 states. O’Reilly Automotive, Inc. was founded in 1957 and is headquartered in Springfield, Missouri.

ORLY and Berkshire Hathaway

Berkshire Hathaway Chairman and CEO Warren Buffett gestures during an interview with Liz Claman on the Fox Business Network in Omaha, Neb., Monday, May 5, 2014. The annual Berkshire Hathaway shareholders meeting concluded over the weekend. [Image Sourec: AP Photo/Nati Harnik]

In the light of the Berkshire Hathaway Annual Shareholder meeting on Saturday, May 5, 2018 the financial analysts’ community discussed the potential investments targets for the Warren Buffet’s fund. As such, O’Reilly appears to fit into the Buffet’s rules framework and was rated as second stock in the targets list. As of now, the top institutional holders of ORLY are Blackrock and Vanguard Group funds which is itself a positive company of investors and should Warren Buffet join this club, the growth momentum for ORLY’s stock will only improve.

[Source: www.CSIMarket.com]

Over the last year ORLY had a price gain of +4.45%, YTD gain of +8.17% and P/E ratio of 21.28 based on TTM financials. In comparison with the retail industry in general we can see that the market fell significantly over TTM which is 62.93%. at the same time the industry average for P/E is 43.04 based on TTM. That said, it brings us to ORLY outperforming the falling market with significant difference, while presenting less overvaluation by the market and hence expectancy of the future growth.

[Source: www.CSIMarket.com]

O’Reilly Automotive’s leadership succession

From left to right: Jeff Shaw, COO and Co-President, Greg Johnson, CEO and Co-President, Greg Hensley, former CEO, acting Executive VC of the Board

[Image Source: Official O’Reilly Automotive Inc website]

On May 8, 2018 the company announced two important points: (1) appointment of new CEO and COO, and (2) increase in the maximum target leverage ratio from 2.25 to 2.5. The first matter was expected by the market as the company announced the leadership succession on February 7, 2018. The expectations are that this measure should have positive impact on the overall ORLY performance and bring the company to a better sustainability rank which is also extremely important for the company’s stakeholders. Based on the data from April 2018, the company is bouncing around average values for sustainability indicators among its peer companies in the retail industry. However, we can see that the company has relatively low ranking from governance aspect which is crucial for further company’s growth, maintaining positive reputation and business relationships with O’Reilly Automotive’s stakeholders.

[Source: Yahoo Finance and Sustainanalytics Inc.]

ORLY’s shift of capital structure through increased leverage

As for the increase of the company’s leverage target, it is fully aligned to the industry’s average of 2.57 for 1Q 2018 based on TTM. Therefore, taking those two aspects into consideration we do not expect any significant effects on ORLY stock performance being their result.

[Source: Yahoo Finance]

From the above graph one can see that the ORLY stock performance on May 8 was in line with the market and only on the following day had relatively sharp fall which was played back until the end of the business week.

The results of the analysts’ community monitoring by Yahoo Finance shows that the average target price for ORLY stock is $289.65 while it is still gaining momentum at $269.62 which makes 7% difference. The coverage for the company is performed by 26 analysts, the majority of whom took either buy or strong buy positions.

[Source: Yahoo Finance]


I take buy side on ORLY because I see the potential for the company’s growth comparing to its peers in the retail market. Coupled with the leadership update that the company recently received, it is reasonable to expect further surge of ORLY stock price. ORLY is a strong buy especially now that fund managers and the analyst community both have a very positive outlook for it. Its bullish one-year algorithmic market trend forecast score backs up my strong buy rating for ORLY. As you can see from the chart below, I Know First’s stock picking algorithm has a 1-year predictability score of 0.74 for ORLY stock. It means I Know First has a great history of correctly judging the 12-month return of O’Reilly Automotive’s stock.


Past I Know First Forecast Success With ORLY

In a forecast dated June 11, 2017, I Know First’s algorithm indicated strong growth for ORLY. On May 11, 2018, ORLY returned 4.71%, showing the accuracy and precision with which, I Know First has recommended ORLY in the past.

This bullish forecast for ORLY was sent to I Know First subscribers on June 11, 2017

To subscribe today click here.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day and can be simplified explained as the correlation-based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 to feel confident about/trust the signal.