O'Reilly Automotive Inc.ORLY

Morningstar Rating

Stock Research and Analysis

by Zoe Tan

O'Reilly Automotive is in the midst of integrating the CSK Auto business into its operations. In our view, the deal is an excellent strategic move, and we expect the combined entity to realize meaningful cost savings over the long haul. O'Reilly's seasoned Read more

Bulls Say

O'Reilly's acquisition of CSK gives the firm a national platform to roll out its dual-market strategy. The deal puts the combined entity on par with number-two player Advance Auto Parts, in terms of number of stores, and gives the firm an instant presence in the western U.S.

With the average age of cars on the road at 9.5 years and rising, the $200 billion automotive aftermarket should benefit from increased demand. Sluggish new-car sales amid the uncertain economic climate also bode well for this trend.

O'Reilly boasts a seasoned management team with extensive industry expertise and relationships. CEO Greg Henslee has been with the firm for more than 25 years and COO Ted Wise for more than 35 years.

We believe the firm will benefit from a surge in demand for automotive replacement parts as consumers defer new vehicle purchases amid the weak economic environment. Read more

Bears Say

O'Reilly could hit some serious road blocks as it integrates the CSK Auto acquisition. Aside from potential cultural clashes and branding conflicts, there is a heightened sense of uncertainty, as O'Reilly has never made an acquisition outside its core markets.

CSK's sales may weigh on top-line growth, as most of its stores are on the West Coast (with a concentration in California), a region faced with pronounced economic weakness during the last year.

High gasoline prices could result in deferrals of vehicle maintenance, which would weigh on the firm's results.

Technological improvements have extended the quality and useful life of automotive parts, resulting in less frequent replacement and maintenance. Read more

Strategy

In an effort to focus on integrating the CSK acquisition and free up capital-expenditure dollars, O'Reilly plans to slow its internal store growth to about 100 stores over the next few years, down from Read more

Management

Greg Henslee became CEO in February 2005, marking the first non-O'Reilly to hold that position. Former CEO David O'Reilly retained the role of chairman of the board. We like that the roles of CEO and chairman are split, as it ensures that an independent Read more

Profile

Founded in 1957, O'Reilly is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States. As Read more

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