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Positive Sentiments for Turnaround Ahead: O’Reilly Automotive Inc. (ORLY)

O’Reilly Automotive Inc. (NASDAQ: ORLY), the owner of a network of automotive accessories and spare parts stores, continues to benefit from Americans’ significant reliance on autos. Already, the typical automobile in the United States is more than 10 years old, and the growing cost of new cars may raise that age.

According to S&P Global Mobility, the average automobile age in the United States is 13 years. Because the average cost of a new automobile has now surpassed 40,000, most Americans will most likely continue to drive their vehicles to postpone the purchase of a new one.

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Against this backdrop, purchasing and fixing auto components is a need for millions of Americans every year. Older cars require greater maintenance, which frequently necessitates the purchase of several replacement parts and whole assemblies. Because of this, O’Reilly Automotive has experienced sales increases for more than two decades.

O’Reilly Automotive has nearly doubled its store count in the last twelve years, with 5,811 locations in the United States and 27 in Mexico as of March 2022. At the same time, the firm is consistently increasing retail performance, with LFL sales up 14 percent year on year in 2021, marking the company’s 29th year of LFL sales increase. O’Reilly Automotive’s revenue climbed by 15% last year to more than $13.3 billion, and overall sales have expanded at an annual pace of 8.9 percent during the last 20 years.

O’Reilly Automotive’s operational style also enables them to produce large free cash flow. In 2022, management anticipates generating $1.3 billion to $1.6 billion in free cash flow. This free cash flow is being used by the corporation to buy back shares, with $880 million invested in the first four months of 2022 alone.

O’Reilly Automotive is largely resilient to the threats of inflation and recession. Regardless of the situation of the economy, used automobiles require repairs. Cars have traditionally been a source of great dependency in American families since they are sometimes the primary method of transportation to and from school or job. As a result, even at increased rates for repairs and spare parts, the ordinary American will not resist forced auto maintenance.

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