O Reilly Automotive Inc (ORLY): what the price assumes

In the published model solve dated 2026-Q2, anchored at $88.35, O Reilly Automotive Inc (ORLY) is priced for +7.1% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-03.

Generated: 2026-08-31 · Source: https://boothcheck.com/report/ORLY

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 7.6% cost of capital with 4% terminal growth over a 5-year stage.

How unusual the bet is: within-range (limited comparison data)

Valuation X-Ray

Every valuation family lands below the price. The price therefore sits beyond what those standard frames encode.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that call it expensive: Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.2%); the inversion above states its own rate.

Per-Model Detail (n=4)

Economic-Unit Decomposition (Sum Of The Parts)

Only one reportable economic unit is present in the current topology source. Consolidated operating lenses remain available, but there is no multi-unit decomposition.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Bullet Takeaways

• The standard valuation models break on O'Reilly because years of buybacks have pushed book equity negative, so book-value methods do not apply. That is a feature of the capital strategy, not a sign of distress: interest coverage is about 14.8x and free cash flow is roughly $1.9 billion.
• On the methods that still work, the stock is rich. Relative Valuation lands at $64 and EV/EBITDA Relative at $51 against an $86.85 (as of June 27, 2026) split-adjusted price, so the price is paying a premium to where peers trade.
• The recent business is genuinely strong. Q1 2026 comparable store sales rose 8.1% and EPS climbed 16% to $0.72, and full-year guidance calls for 3% to 5% comps and $3.15 to $3.25 EPS. The bet is on durability of that compounding, not on a turnaround.

Bull Case

What the standard models miss about O'Reilly is the whole point of the name. Run the usual book-value methods and they return nothing: book equity is negative, so Simple Excess Return, Residual Income, the Graham Number, and ROIC-Justified P/B all fail. The reflex is to read negative equity as distress, but that is exactly the wrong conclusion here. O'Reilly has spent more than a decade buying back stock aggressively, shrinking the share count at roughly 4.4% a year, and the negative book value is the accounting residue of returning capital, not a hole in the business. Interest coverage is about 14.8x and the company generates roughly $1.9 billion of free cash flow, which is the opposite of a balance sheet in trouble. The gap between what the book-value screens show and what the business actually does is the bull case.

The operating record is the engine that justifies the premium. First quarter 2026 comparable store sales grew 8.1% and diluted EPS rose 16% to $0.72, with total revenue up 10% to $4.56 billion (O'Reilly Q1 2026, stocktitan). The company's own filing frames the durable demand driver plainly: an increasing total light-vehicle fleet and continued investment will support continued demand for automotive aftermarket products, and management remains confident in gaining market share through its dual-market strategy (FY2025 10-K, accession 0000898173-26-000009). The dual-market model, serving both do-it-yourself and professional installer customers, is the structural advantage that keeps comps positive through cycles.

The price implied assumption is, for once, not heroic. At $86.85 the market is paying about 23x company-wide operating income, which solves to roughly 9.2% annual operating growth for five years. The near-term pace is within what O'Reilly has recently delivered, with Q1 comps at 8.1% and full-year guidance of 3% to 5% comps and $3.15 to $3.25 EPS (O'Reilly Q1 2026, Yahoo Finance). The stretch is in how long the growth must persist, not in the rate itself. For a business compounding store count toward 235 net new openings a year with consistent mid-single-digit comps and relentless buybacks, asking for 9% operating growth is a bet on continuation of a proven model rather than a leap of faith.

Bear Case

The bear case starts with the methods that disagree, because they are saying the same thing from different angles: the price is rich. Set aside the book-value models that fail on negative equity and look at the multiple-based ones that still apply. Relative Valuation lands at $64 on a sector P/E near 20x, and EV/EBITDA Relative at $51 on a sector multiple, both well below the $86.85 split-adjusted price. The conservative, peer-anchored reads are the more honest description of what an auto-parts retailer is worth, and they put the stock at a meaningful premium to its own sector. When the price sits above every multiple-based frame, the buyer is paying for quality and consistency that is already widely recognized.

There is no tangible-book anchor to fall back to, so the entire valuation rests on the durability of the earnings stream and the continuation of the buyback. Net debt sits around $5.9 billion against trailing operating income of about $3.6 billion, a manageable but not trivial load, and the buyback that drives per-share growth is itself funded partly by leverage. If comparable store sales decelerate toward the low end of the 3% to 5% guidance, or below it in a weak consumer year, the per-share compounding that justifies the premium slows at the same time the leverage stays fixed.

The demand story also has a long-term question mark that the current comps mask. O'Reilly's filings lean on the growing light-vehicle fleet as the demand driver, but the aftermarket thesis assumes vehicles stay on the road long enough to need parts. A faster shift toward newer vehicles, changing vehicle technology, or a consumer that defers repairs in a downturn would all pressure the same comp line that is currently running at 8.1%. The peer cohort here is a grab-bag of consumer-cyclical names rather than direct competitors, which makes the relative read noisier, but the direction is consistent: the methods that can be computed all say the price is ahead of the fundamentals, and the bet is that O'Reilly keeps outgrowing the multiple it already commands.

Valuation

O'Reilly is a case where half the valuation toolkit simply does not apply. Years of buybacks have driven book equity negative, which knocks out every book-value method (Simple Excess Return, Residual Income, Graham Number, ROIC-Justified P/B) and triggers the model's distress gate on the projection-based methods. That gate is conservative and worth respecting, but the distress label here is a screening artifact of negative equity rather than a real solvency problem: interest coverage is about 14.8x and free cash flow is roughly $1.9 billion. What remains usable is the multiple-based set, and it reads rich: Relative Valuation at $64, EV/EBITDA Relative at $51, both below the $86.85 price, with Ben Graham Formula closer at $99.

The cleaner read comes from inverting the price. At $86.85 the market pays about 23x company-wide operating income, which implies roughly 9.2% annual operating growth sustained for five years, computed at a 7.7% cost of capital with 4% terminal growth, where each point of cost of capital moves the implied growth about 7.1 points. The priced-in assumption reads as within range: the near-term growth rate is consistent with O'Reilly's recent delivery, and the real question is duration. The stock is not cheap on any peer multiple, but the inversion says it is paying for a continuation of demonstrated execution rather than a fantasy. That is a defensible price for a high-quality compounder and an expensive one if the comps fade.

Catalysts

O'Reilly reported Q1 2026 results on April 29, 2026, with comparable store sales up 8.1%, diluted EPS up 16% to $0.72, and total revenue up 10% to $4.56 billion (O'Reilly Q1 2026, stocktitan). The stock rose about 6.6% on the print as the comp beat reassured investors on demand durability (Yahoo Finance). The company completed a 15-for-1 forward stock split on June 10, 2025, so all per-share figures here are split-adjusted.

The forward setup centers on guidance and the buyback. Full-year 2026 guidance calls for 225 to 235 net new store openings, comparable store sales growth of 3.0% to 5.0%, total revenue of $18.7 billion to $19.0 billion, and diluted EPS of $3.15 to $3.25 (Yahoo Finance). Analyst sentiment is a Moderate Buy with an average target near $110, including Evercore ISI's Outperform and $110 target. The catalysts to track are the quarterly comp prints against the 3% to 5% guide, store-opening cadence toward the 235 target, the pace of share repurchases that drives per-share growth, and any consumer-spending or vehicle-fleet data that would confirm or threaten the aftermarket demand thesis.

Peer Cohorts (Per Segment, With Filing Citations)

Automotive aftermarket parts (single operating segment) (reported)

• AZO (AUTOZONE INC)
• FY2025 10-K: …repair industry through ALLDATA. This revenue is recognized as services are provided. Revenue from these services is recognized over the life of the contract. A portion of the Company's transactions include the sale of auto parts that contain a core component. The core component represents the recyclable portion of…
• FY2025 10-K: …next day delivery programs in most of our U.S. markets. Additionally, we offer a mobile application that provides customers with store locations, driving directions, operating hours, product availability, the ability to purchase products and other information. We also provide access to specialty tools as one of our…
• AAP (ADVANCE AUTO PARTS, INC.)
• FY2025 10-K: …Company believes that these trade names, service marks and trademarks are important to the merchandising strategy. The Company does not know of any infringing uses that would materially affect the use of these trade names and trademarks and will actively defend and enforce them. Competition The Company operates in…
• FY2025 10-K: …optimization portion of its 2024 Restructuring Plan. The Company serves its professional and DIY customers through a variety of channels ranging from traditional "brick and mortar" store locations to self-service e-commerce sites. The Company believes it is better able to meet its customers' needs by operating under…
• GPC (GENUINE PARTS CO)
• FY2025 10-K: …• Tools and diagnostic devices for repair and maintenance • Paint, body care, and collision repair supplies (in select markets) We believe we create value for our customers through: • Advanced inventory management using data analytics to ensure product availability where it's needed most • Extensive distribution…
• FY2025 10-K: …across our two Automotive segments. Our Global Automotive network serves over one million commercial c ustomer locations. We have a diverse commercial customer base with no specific customer type representing an outsized concentration of our overall business. Our network operates in large and fragmented markets with…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.