O’Reilly’s First-Quarter Results Leave It Poised to Meet Our 2022 Targets; Shares Rich

We have a more sanguine view of narrow-moat O’Reilly’s first-quarter results than market sentiment, planning no large change for our $570 per share valuation despite the stock’s low-double-digit percentage plunge in response to the report. O’Reilly’s 4.8% comparable growth (29.6% two-year stack) leaves it poised to approximate our 5% full-year target, and we see little reason to change our long-term expectations (mid-single-digit percentage annual top line growth, low-20s adjusted operating margins). We had been conservative with our 2022 estimates considering difficult comparisons (15% revenue growth last year) and sharply higher fuel costs, and note that O’Reilly’s opening quarter tends to be affected by weather (while snowstorms can boost demand over the year as vehicle wear and tear rises, they can mute first-quarter results as motorists stay home). We believe these factors underlie our differentiated response. But despite the trading swoon, we suggest investors await a more attractive entry point before building a position, as O’Reilly’s best-in-class position does not render it invincible.