AutoZone Vs O’Reilly Automotive Which Is Best?

New and used car prices have slowly begun to fall, and dealers have more inventory on hand than in recent years. But high inflation and rising car insurance premiums have kept many customers from pulling the trigger on vehicle purchases, and high interest rates have made auto loans a daunting proposition.

Because of those factors, car owners are still holding on to their vehicles and searching for ways to preserve their cars’ value and condition.

That demand has fueled sales for aftermarket auto parts dealers Autozone Inc. (NYSE: AZO) and O’Reilly Automotive Inc. (NASDAQ: ORLY).

Both automotive companies bolstered their revenue in 2023. Autozone reported a 7.4% increase in sales from 2022, and O’Reilly notched a 9.7% year-over-year increase. And both stocks have responded in kind with AZO up 35.2% over the past year, while ORLY is up 39.8% during the same period.

Both stocks have outperformed the S&P 500 as well. The broader market is up 31.6% over the past 12 months. They have even outperformed “Magnificent Seven” members Apple and Tesla over that timeframe.

While no industry may ever be fully recession-proof, the automotive parts industry is close. If the economy improves, customers are only likely to drive more.

So, which auto parts stock is best: Autozone or O’Reilly?

AutoZone Financials Remain Strong

After Autozone reported its results from the 2nd fiscal quarter of 2024, AZO share price jumped to an all-time high.

The company reported $3.9 billion in revenue, which was up 4.6% from the same quarter of 2022 even though management said it didn’t have quite the expected performance around the holidays.

Revenue for the quarter slightly beat analysts’ expectations by 0.27%. Investors were also impressed by the company’s improving margins. Lower supply chain costs played a crucial role in increasing Autozone’s gross profit margin to 53.9%, up 1.6% from 2022 .

As a result, net income rose over 8% from 2022 to $515 million. Diluted earnings per share (EPS) soared by 17.3% year-over-year to $28.89, which beat estimates by over 9%. Driving that increase was the company’s share repurchase initiative of 84,000 units during the quarter.

Adding to the bullish tones is the geographical reach the company enjoys, operating in the US, Brazil, and Mexico, and opening 29 new locations in the 2nd quarter. Autozone closed three US locations, bringing the current store total to 7,191 across the three countries. Same-store sales also increased in the quarter by 1.5%

The company reported $17.46 billion in sales in 2023, and it expects 2024 revenue growth in the high single digits.

O’Reilly Expands To Puerto Rico

Autozone posted a strong quarter that also shared striking similarities with the latest results from O’Reilly. In Q4 2023, O’Reilly Automotive reported $3.83 billion in revenue, up 5% from the same quarter of 2022. That was slightly less, however, than analysts expected, missing estimates by 0.8%.

The stock dipped momentarily after the earnings release in early February, but quickly recovered. While revenue wasn’t quite as expected, the company still beat earnings per share estimates by 0.5%.

Net income of $552.5 million was up $24 million, or 5% from 2022. Diluted EPS was up 10.8% from last year, supported by the repurchase of 600,000 shares.

O’Reilly now has 6,095 stores in the US and Mexico. The company opened 186 new stores and expanded into Puerto Rico.

O’Reilly also announced a significant acquisition in December that will expand its footprint into Canada. It acquired Montreal-based Groupe Del Vasto, which operates 23 stores and a distribution center in eastern Canada.

In addition to the acquisition, O’Reilly expects to open between 190 and 200 stores in 2024. The company reported $15.8 billion in sales in 2023 and expects revenue to increase to between $16.8 and $17.1 billion in 2024.

Wall Street View on AutoZone & O’Reilly

Both companies had strong earnings results, but Wall Street is a little more bullish on Autozone at the moment.

Of the 28 analysts who have provided ratings on AZO, 22 consider it a Buy. 3 are highly optimistic with Outperform ratings, and the highest forecast projects the stock leaping by 11.1% to $3,600 in the next 12 months.

The average price target for Autozone stock is a more modest 2% increase to $3,306.02. There isn’t a Sell rating on the stock, with the remaining 6 analysts assessing AZO as a Hold. There is just 1 analyst who believes Autozone shares are likely to underperform the market and drop by as much as 6.8% to $3,054.17.

Not a single Sell rating exists on ORLY at the moment either, but more analysts view it neutrally as a Hold. The average price target for the stock is $1,132.99, which translates to a 1.65% drop from where O’Reilly shares currently trade.

There are still 19 analysts who consider ORLY as a Buy, and the highest forecast is $1300 per share, representing a 12.89% increase from the stock’s current price point. The low forecast has O’Reilly shares plummeting 19.3% to $930 per share over the next 12 months.

Which Stock Is The Better Value?

Going by the analysts’ consensus price targets alone, neither stock is particularly undervalued. That is echoed somewhat by the companies’ price-to-earnings (P/E) values. O’Reilly has a P/E of 29.94 while Autozone has a P/E of 25.55.

Both companies have undertaken significant share repurchasing programs, which benefit shareholders though neither currently pays a dividend.

AutoZone Vs O’Reilly Automotive Stock, Which Is Best

AutoZone is the market leader and more highly regarded by Wall Street with 11 analysts revising their estimates higher for the upcoming quarter.

Autozone is the largest aftermarket auto part retailer in the US, with O’Reilly close behind. Autozone may have the more recognizable brand but O’Reilly has been growing at a faster pace. O’Reilly is expanding into a Canadian market where Autozone doesn’t operate, but Autozone has a larger presence in Mexico.

The most recent earnings for both companies were solid, and the companies shared similar revenue growth. O’Reilly’s revenue came in slightly less than expected, however, where Autozone slightly exceeded estimates. Autozone has a better P/E value and it’s earned better ratings from Wall Street Analysts.

ORLY has outperformed AZO over the past year, but Autozone shares have gained more year-to-date. ORLY is up 21.17% since the beginning of 2024, while AZO is up 24.7% in the same period.

Both companies are solid investments in an industry that is expected to continue to grow, irrespective of economic conditions. The big question for investors is how much room the auto parts stocks have for gains. While both certainly have potential, Autozone is the more attractive investment at this point.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.