Blackhat Loves ORLY ...O REALLY?!? I asked why.
Here is a chat I had earlier with the infamous Blackhat in our private Certified User chatroom about the company O'Reilly Auto Parts (competitors to Autozone). Conversation below:
BlackHat: ORLY
WallStreetOasis.com: what is orly's downside?
WallStreetOasis.com: what happens in a recession?
BlackHat: recessions are good
BlackHat: expansions are good
BlackHat: what you dont wanna see is a new car purchase cycle start up again
WallStreetOasis.com: auto parts...similar to autozone?
BlackHat: direct competitor ya
WallStreetOasis.com: but then
BlackHat: more focus on commercial side though which makes them have a better growth profile
WallStreetOasis.com: if economy starts to recoverisnt new auto cycle about to reset
WallStreetOasis.com: since people have been holding off for a while?
BlackHat: right
BlackHat: but you should still see people maintaining their cars
WallStreetOasis.com: ok, true
WallStreetOasis.com: so what is it correlated with?
BlackHat: last thing you wanna see with the aftermarket auto parts sector is the avg life of a car declining
WallStreetOasis.com: how many used cars are on road?
WallStreetOasis.com: like over 5 yrs oold?
BlackHat: avg life of a car, miles driven
BlackHat: avg life is like 9.5 years now its ridiculous
WallStreetOasis.com: ok...
BlackHat: and keeps increasing
WallStreetOasis.com: i like that trend
WallStreetOasis.com: what's it trading at?
WallStreetOasis.com: and historically?
BlackHat: 88 high/89 low
WallStreetOasis.com: i mean multiples
BlackHat: should be like 21-22x in my eyes
BlackHat: gets up to 25-26
BlackHat: trading at around 18 now
WallStreetOasis.com: what was low?
BlackHat: prolly mid 70s, lemme look
BlackHat: so like 16x
WallStreetOasis.com: cool
BlackHat: great value buy / long term play if ur into that sorta thing
WallStreetOasis.com: they arent crooks?
BlackHat: i like it to 110
BlackHat: nope theyre one of the best mgmt teams ive everk nown
BlackHat: ever known*
WallStreetOasis.com: no acct fraud
WallStreetOasis.com: etc
WallStreetOasis.com: ?
WallStreetOasis.com: lol
BlackHat: well by extension, no
BlackHat: honest bunch
WallStreetOasis.com: ok, I'm in
BlackHat: lol
BlackHat: ur a quick sell!
WallStreetOasis.com: yup
WallStreetOasis.com: looking for long term play
WallStreetOasis.com: in my retirement account
WallStreetOasis.com: have cash to put to work
BlackHat: haha nice
WallStreetOasis.com: but why has it seen
WallStreetOasis.com: such a runup in 2011
WallStreetOasis.com: and 2012?
BlackHat: even when growth is slow they have such great vendor captivity that they negotiate payments like 1 year in advance
WallStreetOasis.com: opening new locations?
BlackHat: so they get mad negative working capital and buy back like 8-9% of their stock each year
BlackHat: they just turn the borrowed inventory and pay it back that way
WallStreetOasis.com: great, but why the runup so big mid 2011?
BlackHat: yeah opening new locations
BlackHat: big acquisition
WallStreetOasis.com: so they were on an expansion track
BlackHat: of a west coast auto parts guy
WallStreetOasis.com: and that has slowed?
BlackHat: a bit, as the acquired company has matured
WallStreetOasis.com: expansion plans?
BlackHat: but they just bought another one in the northeast which theyve never penetrated
BlackHat: usually the NE is just advance vs autozone
BlackHat: but theyre coming in
BlackHat: since advance is phasing out
WallStreetOasis.com: cool
WallStreetOasis.com: why is advance phasing out?
WallStreetOasis.com: orly 101
BlackHat: brand awareness isnt as strong. not as good at having the inventory in stock at all times. just overall weakness
WallStreetOasis.com: isnt as strong as autozone?
BlackHat: right
WallStreetOasis.com: but wont orly have that issue in NE?
BlackHat: and orly is eating their lunch in the mid atlantic
BlackHat: orly has strong brand and distribution so they compete very well with autozone
WallStreetOasis.com: who was in mid atl first?
WallStreetOasis.com: advance or orly?
BlackHat: about the same time
WallStreetOasis.com: and orly won
BlackHat: orly probably more though, just by presence
BlackHat: yeah
WallStreetOasis.com: any regions
WallStreetOasis.com: they in with autozone
BlackHat: orly will always beat autozone straight up
WallStreetOasis.com: that they are winning?
BlackHat: yup
WallStreetOasis.com: and how do you define winning?
WallStreetOasis.com: mkt share gains?
BlackHat: mkt share gains on both sides, commercial and retail
WallStreetOasis.com: and how do they know autozone's mkt share?
BlackHat: its more or less an oligopoly, just 3 players in the market. not hard to see what everyone else is doing
BlackHat: wow fb 29.77
WallStreetOasis.com: DOWN SHE GOES
BlackHat: ^
WallStreetOasis.com: still holdiong my puts
BlackHat: same
WallStreetOasis.com: from yesterday
WallStreetOasis.com: and the jan 14s
WallStreetOasis.com: ok, will put $10k into Orly
BlackHat: but ya - for orly main growth generator coming up especially in the northeast, greg (CEO) says they are moving in to increase commercial awareness
BlackHat: ive got about 150k in it myself
WallStreetOasis.com: but
WallStreetOasis.com: is the
WallStreetOasis.com: penetration done on west coast and mid atl?
WallStreetOasis.com: what is runway
WallStreetOasis.com: to keep growth in double dig?
BlackHat: probably in mid atlantic its done, but not quite on west coast
WallStreetOasis.com: 2yrs
WallStreetOasis.com: ?
WallStreetOasis.com: or depends on NE?
WallStreetOasis.com: any international?
WallStreetOasis.com: or harder?
WallStreetOasis.com: apple bounced back today
WallStreetOasis.com: got more in at 490
BlackHat: im expecting revenue growth of about 8% next couple years with EPS growth 18-20%
BlackHat: thats worth at least 22x to me
WallStreetOasis.com: ok
BlackHat: so i pay it
BlackHat: the rest of the growth wont come from expansion but organic
BlackHat: on the top line
WallStreetOasis.com: so shoudl i put in 10k now
WallStreetOasis.com: or 5k and 5k?
BlackHat: hmm
WallStreetOasis.com: or wait
BlackHat: 88.80 is pretty good
WallStreetOasis.com: weak #s for auto sales
WallStreetOasis.com: in europe
BlackHat: not really correlated with auto sales
BlackHat: ahhaha those are a guarantee
WallStreetOasis.com: i thought weak new sales
WallStreetOasis.com: good
BlackHat: orly wont respond on that
WallStreetOasis.com: = older fleet
BlackHat: you could hold on and see if it drops a bit in the next week or two
WallStreetOasis.com: = more breakdowns
WallStreetOasis.com: ok, will hold
BlackHat: really no catalysts until earnings
WallStreetOasis.com: been waining
BlackHat: which are early feb
WallStreetOasis.com: and overall mkt
WallStreetOasis.com: is too high
BlackHat: yup
WallStreetOasis.com: think I could get it at ~$80
BlackHat: if advance gets bought by private equity you'll see ORLY get a really nice boost tho
WallStreetOasis.com: will put it on watch list
BlackHat: ehhh i dont think you'll get it at 80
WallStreetOasis.com: yup, true
WallStreetOasis.com: ok, 82
BlackHat: maybe 85
WallStreetOasis.com: lol
BlackHat: it had been floating in the 90-94 range for a little while last month
BlackHat: im expecting it back up there
BlackHat: then good earnings
BlackHat: targeting 110
BlackHat: orly has been a longtime favorite of mine
WallStreetOasis.com: sounds like it
WallStreetOasis.com: i like the buyback
BlackHat: yeah i always love management that cares <3
BlackHat: theyre so consistent with it too
BlackHat: best stat you can throw at people about orly tho
BlackHat: 13 straight years of top and bottom line growth
WallStreetOasis.com: yeah, that's nice
WallStreetOasis.com: and also
WallStreetOasis.com: looks like it has come off major highs
BlackHat: yup
WallStreetOasis.com: so gives me a bit of comfort
BlackHat: they pre announced a few quarters ago and got whacked
BlackHat: i loaded up at 79-80
BlackHat: said their comp store growth was gonna be like 75bps less
WallStreetOasis.com: but were worse
BlackHat: couple other things
WallStreetOasis.com: than expected
BlackHat: was due to a soft winter
BlackHat: yeah
WallStreetOasis.com: ah, heavy winter = more repairs
BlackHat: soft winter means less wear and tear on cars
BlackHat: yup
WallStreetOasis.com: cool
WallStreetOasis.com: global warming aginst you
BlackHat: so this is a huge anti-al-gore play
BlackHat: hahah exactly
BlackHat: everyone knows i love me some o reilly
BlackHat: ive been pitching that stock for 6 years haha
BlackHat: was the first stock i ever covered in my career







Comments
maybe i am wrong here....but
maybe i am wrong here....but aren't car sales going up due to the beginning of a new purchasing cycle and not necessarily improved economic conditions? My understanding is that due to the recession, many people have delayed purchasing new cars and instead have driven their old cars to the ground (as a result, this has increased the car purchasing cycle way above historical average).
If this is holds true and people are finally replacing their old junkers for newer cars, sales at autopart stores should take a hit.
Seems like the trade should have been at the beginning of the recession.
Thoughts?
"The way to make money is to buy when blood is running in the streets."
John D. Rockefeller.-
theassetpro: maybe i am wrong
maybe i am wrong here....but aren't car sales going up due to the beginning of a new purchasing cycle and not necessarily improved economic conditions? My understanding is that due to the recession, many people have delayed purchasing new cars and instead have driven their old cars to the ground (as a result, this has increased the car purchasing cycle way above historical average).
If this is holds true and people are finally replacing their old junkers for newer cars, sales at autopart stores should take a hit.
Seems like the trade should have been at the beginning of the recession.
Thoughts?
That's kind of the single fear with the auto parts players. A new purchasing cycle would definitely slow them down. The idea though is that even in a new car cycle you'll have a decent amount of people driving older cars and still keeping the business up, and the habit remains for new car owners who just traded in their old cars to keep servicing them. That and the thought that the cycles are becoming more muddied and not *everyone* is buying a new car at the same time. You're definitely right though, that is where the cyclical aspect would be.
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theassetpro: maybe i am wrong
maybe i am wrong here....but aren't car sales going up due to the beginning of a new purchasing cycle and not necessarily improved economic conditions? My understanding is that due to the recession, many people have delayed purchasing new cars and instead have driven their old cars to the ground (as a result, this has increased the car purchasing cycle way above historical average).
If this is holds true and people are finally replacing their old junkers for newer cars, sales at autopart stores should take a hit.
Seems like the trade should have been at the beginning of the recession.
Thoughts?
Off the lot car purchases increased approx. 16% in 2012. In my opinion, I would say this is more so due to the deals on purchasing new cars right now, which if a new purchasing cycle is indeed in effect, will disappear. This could create a balancing effect.
And still, I think a lot of people are going from their run down cars to newer (used) cars. Rather than a brand new model.
Frank Sinatra - "Alcohol may be man's worst enemy, but the bible says love your enemy."
Also, something to consider
Also, something to consider long term is that many car manufacturers are making their car parts more technologically advanced (i.e. some parts are programmed with computers, etc), requiring car owners to be more reliant on car dealerships that tend to have better trained mechanics, tools, etc.; rather than your average mechanic shop which tends to use autozone, ORLY, and others.
My understanding is that car manufacturers make a big chunk of money of the dealers auto repair department and thus have a vested interest in keeping customers using their dealerships as much as they can.
"The way to make money is to buy when blood is running in the streets."
John D. Rockefeller.-
BlackHat whats your take on
BlackHat whats your take on the purchase of new cars in the NE. Due to sandy, will the average age of cars decrease in that area and thus dampen the NE expansion?
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barbariansatthegates: BlackHa
BlackHat whats your take on the purchase of new cars in the NE. Due to sandy, will the average age of cars decrease in that area and thus dampen the NE expansion?
Definitely could, but being the boring value guy that I am, a one time event like that would only make me want to buy on weakness. The expansion is really just acquiring an already mature group of stores and a distribution center in Maine, so they don't need to build awareness and don't need an initial surge of customers or anything like that, but I never really thought of that as something that could permanently impair their move into the NE market.
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Well well well. Sounds like
Well well well.
Sounds like somebody got access to real time quotes.
Stock down 1.18% following
Stock down 1.18% following BH's in-depth analysis.
"A man generally has two reasons for doing anything. One that sounds good, and the real one." - J.P. Morgan
nice, im gonna visit this
nice, im gonna visit this thread again next year and see what changed
O RLY? YA RLY! ^.^
O RLY?
YA RLY!
^.^
Any thoughts about Ford?
Any thoughts about Ford? Sales for them continue to impress. Looking at the other side of the coin from AZO and ORLY.
Thanks, BH. I had looked at
Thanks, BH. I had looked at AutoZone sometime in November for a little research but didn't dig deep enough into ORLY.
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FutureBanker09: Any thoughts
Any thoughts about Ford? Sales for them continue to impress. Looking at the other side of the coin from AZO and ORLY.
Love Ford. But don't look at the businesses as opposites, where one gaining ground means the other has to lose it. In fact, more sales for F and its peers would mean more sales (albeit down the line) for ORLY and its peers. I'm personally long both in my PA actually.
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Thought average car life span
get a room you two
O o o o reiiiillllly's Auto
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my thoughts on autos: OEs
BlackHat: theassetpro: mayb
Pump n Dump?
Have you factored in the
This is a great thread, but
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Why will they "always beat
Value Sleuth: Why will they
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Ah, okay, thanks, BH. I know
Value Sleuth: Ah, okay,
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I've always liked the auto
bear396: I've always liked
bear396: I've always liked
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BlackHat: Value Sleuth: Ah,
Fan of ORLY- my brother used
KarateBoy: Fan of ORLY- my
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BlackHat: KarateBoy: Fan of
KarateBoy: BlackHat: Kara
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BlackHat: Back to ORLY - one
KarateBoy: BlackHat: Back
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BlackHat: KarateBoy: Blac
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BlackHat: KarateBoy: Blac
They are. The management is
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Thanks for the insight. It's
cheese86: Thanks for the
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best company of all time.
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