Q2 2025 - O'Reilly Auto - Full Analysis
Should we start to worry about declining returns on incremental market share gains?
Yesterday, O’Reilly Automotive reported its Q2 2025 results followed by an earnings call this morning. At the time of writing, the stock is up close to 4%, hitting a new all-time high.
This time last year, we commented on O’Reilly’s Q2 performance and outlook, highlighting the potential for shares to provide attractive risk-adjusted returns from thereon.
O’Reilly is outperforming its peers, continues to maintain industry-leading profitability, and has lapped the toughest year-over-year comps. It’s playing from a position of strength, which got highlighted multiple times during the conference call. While performance has slowed down, investors should focus on the opportunity of failing competition, also for its bigger competitors (AAP and GPC) that have limited free cash flow, fewer owned properties, higher fixed costs…
At a time when many retailers are experiencing fading momentum on the top line and incremental cost pressure, O’Reilly maintained a core EBIT growth of 4% year-over-year (excluding the increase in non-cash depreciation on growth CAPEX). ORLY continues to buy back stock, which, coupled with better comps in the second half, should drive c. 10% growth in NOPAT/share in FY24.
Over the past 12 months, shares have returned in excess of 40%, vastly outperforming the +17% for the S&P-500.
Is there more outperformance to come? Let’s review O’Reilly’s recent set of results and provide our thoughts on the multi-year risk/reward. Additionally, we’d like to elaborate on a specific question posed during the conference call’s Q&A session. Similar to yesterday’s discussion on Otis, we’d want to once again stress the importance of maintaining that long-term vision on shareholder value creation.
Earlier this year, we trimmed our overweight O’Reilly position (at $88, split-adjusted) to increase our allocation in our names.
