Advance Auto Parts, Inc. (AAP), AutoZone, Inc. (AZO): These Stocks Might Continue to Defy Gravity This Year

O’Reilly Automotive Inc (NASDAQ:ORLY)

O’Reilly Automotive Inc (NASDAQ:ORLY) was the only one among this group which managed to buck the trend of negative same-store sale growth. The market duly rewarded the stock by sending it up more than 16% in the previous quarter, which is the best of the lot.

The company’s revenue grew 7% in its last-reported fourth-quarter, while an earnings jump of 20% was again the pick of the lot. While O’Reilly also had to contend with headwinds identical to its peers, it singled out its terrific customer service as the reason behind growth.

O’Reilly expects to continue its solid performance going forward, as evident from its earnings expectation of $5.57-$5.67 per share in fiscal 2013, ahead of the consensus estimate of $5.44 a share. O’Reilly is counting on an increase in average miles driven, a colder weather, and growth in its professional and do-it-yourself businesses to further improve its same-store sales.

The company is aggressively building more stores in an effort to catch up with AutoZone. O’Reilly opened 180 stores in the previous fiscal, and is looking at opening 190 in the current fiscal. It has also made a couple of acquisitions to grow its business further.

However, with a trailing P/E ratio of almost 22, O’Reilly is the most expensive of the lot. But, a forward P/E of 16 times suggests that the market is expecting further growth. It would be unwise to discard O’Reilly because of its expensive valuation, since the company has been growing at the fastest rate among peers and is in the green zone as far as same-store sale growth is concerned.

The takeaway

Rising sales of new vehicles haven’t deterred auto-parts retailers from expecting a good year. While there might be headwinds in the short term, the business of these companies is built to last as consumers will go to them for replacement parts as time goes on. A high average vehicle age, coupled with around 50 million cars that are 16 years or older, should help these companies keep their revenue stream intact.

As far as picking the right stock among them is concerned, Advance Auto Parts, Inc. (NYSE:AAP) and O’Reilly look the most attractive ones. Advance Auto’s continuous efforts to bring its same-store sale growth back into the green and O’Reilly’s solid across the board improvement make them the go-to stocks in aftermarket retail.

The article These Stocks Might Continue to Defy Gravity This Year originally appeared on Fool.com and is written by Harsh Chauhan.

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