O’Reilly Auto Parts (ORLY): Moving from Short Bias to Long Bias. ORLY saw a clear benefit from stimulus last year – putting up 2 quarters of 16%-17% comps despite a severe slowdown in miles-driven. The Street is modeling a material slowdown over the next three quarters, which we think is overly bearish. Aside from greater likelihood of stimulus in ’21 to help the group ‘comp the comp’ we’re seeing outsized strength in used car sales, and we face cyclical tailwinds that should inflect positive this year for the Car Parc. Expectations are for -4-5% comps for 2Q and 3Q of 2021, which we think will be beatable for ORLY. The stock has been an underperformer since mid-2020 – trading largely in line with the flow of stimulus checks. But earnings growth should drive the stock from here, as it is likely to earn 2022 EPS a year-early. That suggests that it is trading at a high teens multiple today on NTM earnings, which is generally when you want to be buying ORLY, and we think is more than fair for one of the highest-return models in all of retail. Likely to look for more M&A opportunities as demand stabilizes.
CarParts.com (PRTS): Adding to Short Bias: Given the success in ecomm in the pandemic and ceded share by Amazon and WMT, PRTS had huge ramp in sales growth for a company that hadn’t grown in years. In fact, 2020 is likely to grow by ~50% -- and despite that strength the company will still likely lose money. The Street is expecting mid-teens growth on top of it in 2021, and then again in 2022 – despite the fact that the surge in demand in 2020 was transitory. This name traditionally trades at ~0.25x sales, but today is clocking at a near-peak 1.3x an unsustainable sales number.
