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Is O’Reilly Automotive Inc (ORLY) a Buy After Being Revved Up?

O’Reilly Automotive Inc (NASDAQ:ORLY) was up over 9% on the news that the auto parts company posted record earnings. After the run up, is there room for the stock to go higher? Quite possibly, but the better bet on the auto parts industry might be one of its peers, AutoZone, Inc. (NYSE:AZO).

O’Reilly posted posted EPS of $1.14, compared to $0.94 from a year ago, and above analysts’ estimates of $1.08. The details of the earnings beat included same store sales growth of 4.2% year over year for the quarter (check out how hedge funds are trading O’Reilly).

O'Reilly Automotive Inc (NASDAQ:ORLY)What got a number of investors excited was the fact that the company expects to post $5.57 to $5.67 of earnings per share for 2013, compared to previous analysts’ expectations of $5.52. While the outlook boost is positive for the industry, the stock run-up may have put O’Reilly in over valuation territory, but still leaves the door open for other major auto parts retailers that are yet to announce earnings.

Other major peers include U.S. Auto Parts Network, Inc. (NASDAQ:PRTS), The Pep Boys – Manny, Moe & Jack (NYSE:PBY) and Advance Auto Parts, Inc. (NYSE:AAP). US Auto Parts reported its 3Q results that showed net sales down, but its net loss narrowed from $5.2 million a year ago, to a loss of $2.5 million. This retailer is much smaller than its peers, trading with a sub $100 million market value. The online auto parts retailer has also seen its stock pushed down by almost 60% the last twelve months after missing earnings estimates badly over the last four quarters.

Meanwhile Pep Boys posted 3Q results that included an EPS loss of $0.13, on the back of a 2.7% drop in same store sales. Pep Boys had traded near $15 per share during the second quarter of 2012 after a buyout bid from Gores Group. However, the bid fell apart and the stock tumbled to below $8.70. The auto parts retailer has slowly been rebounding, now trading above $11. Unlike other auto retailers, Pep Boys has a largest dependence on service revenue. Advance Auto Parts also recently posted earnings, outperforming by posting EPS of $0.88 compared to expectations of $0.75. Revenue was flat, despite an almost 2% decline in same store sales.

Back to O’Reilly, its store locations appear to be rather clustered, with around 30% of its stores in Texas and California. AutoZone has been using its cash flow to expand and grow square footage, opening over 70 stores in the U.S. and over 20 in Mexico. AutoZone’s recent earnings showed a 15.6% rise in earnings per share to $5.41, up from $4.68 during the same quarter a year ago. So let’s see why AutoZone is the best opportunity in the industry.

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