Wednesday, after the market closed, ORLY reported Q3 results. SSS of 5.0% were above consensus of 4.0% and Wolfe 4.5%, while operating margins were +60bps better than Cons/Wolfe. EPS of $5.08 beat Cons/Wolfe by 6%. Q4 guide was in-line. Shares +9% vs. flat S&P 500.
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Today (10/23/19), after the market closed, ORLY reported Q3 results. SSS of 5.0% were above consensus of 4.0% and Wolfe 4.5%; operating margins were +60bps better than Cons and Wolfe. EPS of $5.08 beat Consensus and Wolfe by 6%. The Q4 guide is in-line with Consensus.
Two weeks ago, we assumed broader coverage of Hardlines and Internet Retail and issued four deep dive reports including a downgrade of LOW to Peer Perform and reiterated HD, BBY, and W at Outperform. We also assumed coverage of AMZN, ULTA, WSM, RH, TSCO, and SHW (see our 1-page tear sheets here). Finally, we utilized the broader coverage as an opportunity to reposition our legacy auto part retail coverage and downgrade AAP to Underperform and upgraded ORLY to Outperform.
Wolfe Research's Senior Hardlines & Internet Retail Analyst Chris Bottiglieri hosted a webcast to discuss his downgrades of AAP and LOW, bottom-up TAM analyses on both home improvement retail and auto parts retail, his valuation black box: what is driving retail valuations, and more.
Today (10/07/19) we are assuming broader coverage of hardlines and internet retail with deep-dive reports on four companies, including a LOW downgrade to PP. We also have two ratings changes from our existing retail coverage (AAP to UP and ORLY to OP), and assuming coverage of six additional retail names with concise 1-page investment tear sheets.
We are upgrading ORLY to Outperform (from Peer Perform) and rolling our Price Target to CY 20 of $436 (was CY 19 of $371). We are also slightly increasing our estimates.
BorgWarner’s Tier 2 Challenges could continue into 2020
For some time now we’ve been highlighting our concerns that Supplier decremental margins could be worse than expected (see our 7/1 note). We expected pricing to come under pressure (which we saw at Lear and Visteon), we expected higher R&D/Launch costs/lower margins on launch products (ALV and BWA), and we worried that suppliers would face increased difficulty extracting savings from Tier 2 suppliers (which we saw at BWA yesterday). The key question is why would 2020 be any better? See our BWA earnings note.
Visteon Results: Not nearly as bad as feared
Guidance only came down to where consensus already was and moving pieces of the 2nd half margin uptick were clarified. Still expect that 2020 estimates will need to come down meaningfully (we’re 24% below consensus) but don’t see a near-term negative catalyst to get that process started.
Wednesday (7/24/19), after market close, ORLY reported Q2 results. SSS of 3.4% missed cons of 3.6% but beat our 3.0%. EPS of $4.51 missed cons of $4.67 and our $4.64. Q3 comp guide was +3-5% vs. cons +3.9% and our +4.0%. FY comp guide was unchanged. Shares were down 5%.
Ford’s Q2 Call showed why it’s tough to be a bull. Maintaining Market Perform
Ford’s elevated launch costs are likely to continue through 2020, so the Street needs to lower numbers. We’re incrementally more concerned about transparency.
Tesla: Mission on-pace, stock price not exciting near-term
We thought the quarter was better than feared and demonstrated that the company is on solid footing. But also don’t see profitability getting much better near-term as it looks like mgmt. is targeting vehicle affordability over profitability. Good for the mission but likely to leave the stock range-bound.
Veoneer 2Q19 Preview: Expectations of improving cash burn in the 2nd half may be at risk
VNE’s cash burn is expected to moderate meaningfully in 2nd half 2019 on higher top-line and lower R&D costs. We see some risk to both which could refocus investors on the potential for another dilutive capital raise sometime in 2020.
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