O’Reilly Automotive Stock Just Got a New Bull

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As the saying holds, when things get tough, the tough get going. Yet to get anywhere, most Americans need a car, in both good economic times and bad. That’s good news for auto parts retailers, particularly

O’Reilly Automotive
.

D.A. Davidson analyst Michael Baker raised his rating on O’Reilly (ticker: ORLY) to Buy from Neutral on Wednesday, while boosting his price target to $740 from $700.

He’s the latest analyst to get more constructive on auto-parts retailers, a group that’s historically done well in tougher economic times, when consumers are more likely to fix their cars than buy new ones.

Baker’s bullish thesis comes in four parts. First, he raised his estimates for auto-parts retailers, as the nondiscretionary nature of many of their products—you can safely hold off replacing your car’s air freshener for a while but not its brake lights—makes their sales more resilient even as consumers pull back in other areas.

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Secondly, he notes that O’Reilly specifically is a long-term market-share gainer, as it has seen better comparable sales than both Advance Auto Parts (AAP) and

AutoZone

(AZO) in recent years. Third, more Americans are likely going to keep fixing their cars rather than replacing them, given that both new- and used-car prices have reached new highs.

Finally, Baker argues that O’Reilly, and its peers, do have some flexibility to pass on higher prices to customers, shielding margins. After all, drivers may fume that new tires cost more than they did a year ago, but they can hardly drive on flats.

O’Reilly stock is up 1.3% to $638.78 in recent trading. The shares have handily outpaced the market over the past year, and are up roughly 20% since Barron’s endorsed them last spring, compared with a 9% decline for the

S&P 500
.

Baker isn’t alone in his thinking. Analysts across the retail spectrum have been touting more defensive names in the industry in recent weeks, as high inflation and worries about the health of the economy have weighed on more discretionary stores.

Write to Teresa Rivas at [email protected]