Zacks Industry Outlook Highlights O'Reilly Automotive and AutoZone

For Immediate ReleaseChicago, IL – November 20, 2024 – Today, Zacks Equity Research discusses O’Reilly Automotive ORLY and AutoZone AZO.Industry: Auto PartsLink: https://www.zacks.com/commentary/2371960/2-auto-parts-retailers-better-equipped-to-navigate-industry-woesThe near-term outlook for the Zacks Automotive - Retail and Wholesale - Parts industry remains subdued. U.S. new car sales declined for the second straight quarter in the third quarter of 2024, with the full-year vehicle sales outlook being trimmed. Additionally, the industry is navigating challenges, including the shift away from DIY repairs due to the complexity of modern vehicles and the need for significant capital expenditures to keep pace with technological advancements and digitization.The only bright spot is an aging vehicle fleet, which is leading to increased demand for replacement parts as consumers. O’Reilly Automotive and AutoZone are two industry players poised to navigate this dynamic industry environment better.Industry OverviewThe Zacks Automotive - Retail and Wholesale - Parts industry players execute several functions. These include retailing, distribution and installation of vehicle parts, equipment and accessories. Vehicle parts and accessories include seat covers, antifreeze, engine additives, wiper blades, batteries, brake system components, belts, chassis parts, driveline parts, engine parts and fuel pumps.Consumers have two options. They can either opt for repairing vehicles on their own (the ‘do-it-yourself’ or ‘DIY’ segment) or take the assistance of a professional repair facility (the ‘do-it-for-me’ or ‘DIFM’ segment). The industry is highly competitive and undergoing a radical change, with evolving customer expectations and technological innovation acting as game changers.Factors at PlayAging Vehicles Fuel Parts Demand: In 2024, the average age of vehicles in the United States reached 12.6 years, continuing a seven-year trend of increase. This drove growth in the auto parts industry, as older vehicles require more frequent maintenance and replacement parts. With consumers spending more to keep their aging cars running, the demand for auto parts has surged, supporting industry expansion.Decline in Vehicle Sales: New car sales in the United States dropped approximately 2% year over year in third-quarter 2024, marking the second consecutive quarterly decline, according to U.S. Automotive News. Experts predict continued instability through the end of the year. Forecasts for North American light-vehicle production were cut from 15.8 million to 15.5 million units due to delays and production adjustments aimed at managing inventory.Similarly, S&P Global Mobility revised its 2024 U.S. sales outlook to 15.9 million, down from 16 million, while Cox Automotive estimates sales at 15.7 million. This slowdown creates challenges for auto parts retailers, who may feel the strain of weakening demand.Technology Disrupts DIY Repairs: Advances in vehicle technology are transforming the auto parts landscape. As cars become increasingly complex, fewer consumers are performing their own repairs, choosing professional services instead. This shift is diminishing the role of the DIY market, potentially reducing its share within the broader auto parts industry.High Capital Demands Challenge Profitability: The rapid pace of technological change, including the rise of electric and autonomous vehicles, has led to substantial capital expenditure needs in the auto parts industry. While these advancements unlock new growth avenues, they come with steep costs. Additionally, investments in new stores, distribution centers and omnichannel marketing are placing further strain on resources, potentially impacting overall profitability.Zacks Industry Rank Paints a Glum PictureThe Zacks Auto Retail & Wholesale Parts industry is within the broader Zacks Auto-Tires-Trucks sector. The industry currently carries a Zacks Industry Rank #189, which places it in the bottom 24% of around 250 Zacks industries.The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates tepid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are getting optimistic about this group’s earnings growth potential. The industry’s earnings estimates for 2024 and 2025 have contracted around 8.4% and 11%, respectively, over the past year.Before we present a few stocks that could still be on your watchlist, let’s take a look at the industry’s shareholder returns and current valuation first.Industry Lags S&P 500 But Tops SectorThe Zacks Auto Retail and Wholesale Parts industry has outperformed the Auto, Tires and Truck sector but underperformed the Zacks S&P 500 composite over the past year. The industry has soared 11.5% over this period compared with the S&P 500 growth of 29.2%. Meanwhile, the sector has increased 8%.Industry's Current ValuationSince automotive companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio.Based on the trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 49.8X compared with the S&P 500’s 18.22X and the sector’s 18.46X.Over the past five years, the industry has traded as high as 50.97X and as low as 14.03X, with the median being 25.26X.2 Stocks Worth a LookO’Reilly: It is one of the noted retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States. The company has been generating record revenues for 31 consecutive years due to growth in the auto parts market and store expansion efforts. For 2024, O’Reilly projects total revenues in the $16.6-$16.8 billion band, up from $15.8 billion in 2023.With its second international expansion, O'Reilly forayed into Canada by acquiring Groupe Del Vasto — a transaction that closed in January 2024. ORLY is poised to benefit from store openings and distribution centers in profitable regions. The company’s dual-market strategy and strong distribution network bode well. Strong cash flow generation supports the firm’s robust buyback program, boosting investors’ confidence.O’Reilly currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2024 EPS and sales indicates a year-over-year uptick of 6% and 5%, respectively. The consensus mark for 2025 EPS and sales suggests growth of 9% and 5.4% from 2024 projected levels, respectively.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.AutoZone: It is one of the leading specialty retailers and distributors of automotive replacement parts and accessories in the United States. The company has been generating record revenues for 35 straight years and the trend is expected to continue. The company’s high-quality products, store-expansion initiatives and omni-channel efforts to improve customer shopping experience are boosting its market share.With 109 mega hub locations at the end of fiscal 2024, AutoZone is halfway through its objective of establishing over 200 mega hubs. The ramp-up of e-commerce efforts is driving traffic to the company’s website, helping the company to deliver growth. AutoZone’s solid share repurchase program also sparks optimism.AutoZone currently carries a Zacks Rank #3. The Zacks Consensus Estimate for its fiscal 2025 earnings and sales indicates a year-over-year uptick of 8% and 2%, respectively. The consensus mark for fiscal 2026 EPS and revenues suggests year-over-year growth of 12% and 5.4%, respectively.Why Haven't You Looked at Zacks' Top Stocks?Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.Today you can access their live picks without cost or obligation.See Stocks Free >>Media ContactZacks Investment Research800-767-3771 ext. 9339support@zacks.comhttps://www.zacks.comPast performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report O'Reilly Automotive, Inc. (ORLY): Free Stock Analysis Report AutoZone, Inc. (AZO): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks