O’Reilly Automotive Inc (NASDAQ: ORLY) stock has been downgraded by Morgan Stanley. The analyst Simeon Gutman has indicated that the industry’s top-line growth was weaker than expected in the first half. The analyst now estimates flattish same store sales growth for 2017 compared to his initial forecast for 2.2-percent growth. The analyst clarified that the slowdown does not reflect competitive threat by the online channel. Among the factors, Morgan Stanley views as impacting the segment were unfavorable weather, fewer 5–12-year-old vehicles and choppy consumer demand. The firm also noted that ORLY’s pre-announcement was sketchy, not giving enough details on the magnitude of the second quarter earnings miss, gross margin performance and monthly comp cadence. Moreover, due to the second-quarter earnings per share and sales miss pre-announced by O’Reilly Automotive, Morgan Stanley has lowered its estimates and price target for the company. The firm also lowered its estimates for the entire DIY auto space by about 25 percent, a function of lower assumed valuation multiples given weaker top-line trends and lower EPS growth trajectory.
Additionally, the company for a record plunge after the same-store sales missed its forecast for the second quarter. O’Reilly’s peers Advance Auto Parts Inc. and AutoZone Inc. had also extended declines following weak early-year demand and reports that Amazon.com Inc. plans to mount an offensive on the industry. Further, the potential threats to the retailers also are coming from the likes of automakers including Ford Motor Co. and dealership groups such as AutoNation Inc. The companies are making an increasingly crowded bet that aftermarket car parts will be in greater demand from Americans that are holding onto their vehicles longer than ever, the average vehicle on U.S. roads is approaching a record 12 years.
In addition, O’Reilly Automotive has missed analyst estimates at the start of the year on delayed tax refunds and a mild winter that reduced the need to replace some car parts. O’Reilly’s Chief Executive Officer Greg Henslee said that weak consumer demand continued into the second quarter after signs of stronger sales earlier this spring. ORLY’s sluggish sales rekindled concerns that competition from e-commerce could be eroding demand at brick and mortar stores.
O’Reilly Automotive stock has fallen 35.63% in a year (source: Google Finance). According to tipranks.com, 11 analysts has covered the stock while recommend a “Moderate Buy”. ORLY has an average price target of $255.33, which is a further upside of 44.64%.