2. Auto Aftermarket Fundamentals Remain Strong Due
to Increasing of Age of Vehicle Population
Source: O’Reilly Auto Parts Investor Day Presentation
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3. There is Room for the Industry Leaders to Continue
Taking Market Share from “Mom & Pops”
Source: O’Reilly Auto Parts Investor Day Presentation
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4. The Industry is Large, But Growth is Only Moderate at
1.0% - 2.0% a Year.
Source: O’Reilly Auto Parts Investor Day Presentation
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5. O’Reilly’s Sales Performance Remains Rock Solid Due
to Favorable Macro Backdrop
• The company benefits from a relatively even
split of DIY and DIFM business.
• The DIFM market is growing faster as fewer
people have desire to work on their own cars.
• But DIY is doing fine as the soft economy forces
people to hold onto their vehicles longer and do
more work themselves to save money.
• Management is laser-like focused on enhancing
productivity & providing superior customer
service
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6. The Business Model is Scaling Beautifully With Room
for Improvement as CSK Stores Mature
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7. Soft Real Estate Market and Labor Market is Enabling
Lower Store Rents and Keeping a Lid on Wages
• The soft economy has helped O’Reilly improve
their margin structure dramatically over the past
few quarters. These tailwinds should persist for
several more quarters.
• Furthermore, O’Reilly has plenty of room to
improve the performance of the CSK stores they
purchased 3 years ago as they instill the O’Reilly
culture.
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8. Favorable Balance Sheet Changes Accelerating Free
Cash Flow and Improving Return on Capital
• O’Reilly is taking a page from AutoZone’s
playbook and focusing on squeezing cash out of
the supplier base by leveraging their own strong
credit profile.
• Furthermore, management is very focused on
removing excess inventory from the CSK stores.
This has improved Inventory turns.
• Overall, these changes generate cash and
improve ROIC, both of which are very favorable
for equity valuation.
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9. The Company is Starting to Generate Gobs of Free
Cash Flow Which Will Go Towards Big Stock Buyback
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11. Our Valuation Analysis Suggests Fair Value is $94
Based on 2012 EPS.
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