O'Reilly Automotive Inc.

February 05, 2015 O'Reilly Automotive Inc. Current Recommendation SUMMARY DATA NEUTRAL Prior Recommendation Outperform Date of Last Change 06/15/2011 Current Price (02/03/15) $193.28 Target Price $203.00 52-Week High $195.48 52-Week Low $131.00 One-Year Return (%) 43.22 Beta 0.52 Average Daily Volume (sh) 811,862 Shares Outstanding (mil) 101 Market Capitalization ($mil) $19,521 Short Interest Ratio (days) 7.95 Institutional Ownership (%) 90 Insider Ownership (%) 4 Annual Cash Dividend $0.00 Dividend Yield (%) 0.00 5-Yr. Historical Growth Rates Sales (%) 7.8 Earnings Per Share (%) 26.1 Dividend (%) N/A using TTM EPS 26.3 using 2015 Estimate 23.2 using 2016 Estimate 20.3 Zacks Rank *: Short Term 1 3 months outlook 2 - Buy * Definition / Disclosure on last page (ORLY-NASDAQ) SUMMARY O Reilly posted a 26% increase in earnings to $1.76 per share in the fourth quarter of 2014, surpassing the Zacks Consensus Estimate of $1.67. Quarterly revenues scaled up 9% to $1.76 billion, beating the Zacks Consensus Estimate of $1.74 billion. Comparable store sales increased 6.3% in the reported quarter. For first-quarter 2015, O Reilly projects earnings per share in the range of $1.89 $1.93. The company expects consolidated comparable store sales to increase by 3% 5%. The company s strategy of rapid expansion of stores along with active share repurchases helped drive growth. However, O Reilly s highly concentrated store locations make it susceptible to regional economic volatility and other localized problems. Risk Level * Low, Type of Stock Large-Growth Industry Ret/Whl-Auto Pt Zacks Industry Rank * 17 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 1,585 A 1,715 A 1,728 A 1,621 A 6,649 A 2014 1,728 A 1,847 A 1,877 A 1,764 A 7,216 A 2015 1,840 E 1,973 E 2,004 E 1,868 E 7,685 E 2016 8,171 E Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 $1.36 A $1.58 A $1.69 A $1.40 A $6.03 A 2014 $1.61 A $1.91 A $2.06 A $1.76 A $7.34 A 2015 $1.88 E $2.21 E $2.30 E $1.95 E $8.34 E 2016 $9.51 E` Projected EPS Growth - Next 5 Years % 16 2015 Zacks Investment Research, All Rights reserved. www.zacks.com 10 S. Riverside Plaza, Chicago IL 60606

RECENT NEWS O Reilly Q4 Earnings & Revenues Beat Expectations Feb 4, 2015 O Reilly posted a 26% increase in earnings to $1.76 per share in the fourth quarter of 2014 from $1.40 in the year-ago quarter. Earnings also surpassed the Zacks Consensus Estimate of $1.67. Net income improved 19% to $182 million (10.3% of sales) from $152 million (9.4% of sales) in the fourth quarter of 2013. Quarterly revenues scaled up 9% to $1.76 billion from $1.62 billion in the same period a year ago. Revenues also surpassed the Zacks Consensus Estimate of $1.74 billion. Comparable store sales increased 6.3% in the reported quarter, compared with a 5.4% rise in the year-ago comparable quarter. Gross profit ascended 11% to $912 million (51.7% of sales) from $819 million (50.5% of sales) a year ago. Selling, general and administrative expenses rose 8% to $609 million (34.5% of sales) from $564 million (34.8% of sales) in the year-ago quarter. Operating income increased 18% to $303 million (17.2% of sales) from $256 million (15.8% of sales) in the same period last year. 2014 Performance Earnings for full-year 2014 increased 22% to $7.34 per share from $6.03 in 2013 and surpassed the Zacks Consensus Estimate of $7.25. Revenues for 2014 increased 9% to $7.22 billion from $6.65 billion in 2013, marginally surpassing the Zacks Consensus Estimate of $7.19 billion. Store Information During 2014, O Reilly opened 207 new stores. During the fourth quarter, the company opened 57 stores. Also, it plans to open a total of 205 stores in 2015. The total store count across 43 states stood at 4,366 as of Dec 31, 2014. Sales per weighted averagestore increased to $403,000 in fourth-quarter 2014 from $387,000 a year ago. Share Repurchases During the quarter under review, O Reilly repurchased 1.2 million shares for $179 million, reflecting an average price of $152.05. As of Dec 31, 2014, the company repurchased 5.7 million shares for $866 million, translating into an average price of $150.86. Subsequent to the end of the fourth quarter and through Feb 4, 2015, the company repurchased an additional 0.1 million shares for $9 million, implying an average price of $183.2. Since the inception of the share repurchase program in Jan 2011, O Reilly has repurchased a total of 46.4 million shares for $4.23 billion, indicating an average price of $91.16. On Feb 4, 2015, O Reilly also announced that its board of directors has authorized the repurchase of an additional $500 million worth of shares. Thus, the company now has aggregate share repurchase authorization of $5 billion. This additional $500 million authorization is effective for a three-year period, effective Feb 4, 2015. As of Feb 4, 2015, the company had approximately $770 million worth of share repurchase authorization left under its repurchase program. Equity Research ORLY Page 2

Financial Position O Reilly had cash and cash equivalents of $250.6 million as of Dec 31, 2014, up from $231.3 million as of Dec 31, 2013. Long-term debt was $1.4 billion as of Dec 31, 2014, on par with that of Dec 31, 2013. In 2014, net cash flow from operations increased to $1.2 billion from $908 million in the prior-year period. Meanwhile, capital expenditures increased to $430 million from $395.9 million in 2013. Guidance For first-quarter 2015, O Reilly projects earnings per share in the range of $1.89 $1.93. The company expects consolidated comparable store sales to increase by 3% 5%. For full-year 2015, O Reilly expects earnings per share in the range of $8.20 to $8.30. Meanwhile, it expects consolidated comparable store sales to increase 3% 5%. The company s revenue guidance for 2015 is $7.6 $7.8 billion and gross margin guidance is 51.8% 52.2%. Its operating margin guidance is 18.1% 18.5%. O Reilly expects capital expenditures in the range of $400 $430 million in 2015. Free cash flow is expected between $675 million and $725 million. Equity Research ORLY Page 3

VALUATION Shares of O Reilly are currently trading at 23.2x our 2015 EPS estimate of $8.34. The company s current trailing 12-month earnings multiple is 26.3, compared to the 37.6 average for the peer group and 18.8 for the S&P 500. Over the last five years, shares of O Reilly have traded in a range of 16.8x to 27.6x trailing 12-month earnings. The stock is trading at a premium to the peer group, based on forward earnings estimates for 2015. The current is at a 10.5% premium to the peer group for 2015. Our long-term Neutral recommendation on the stock indicates that it should perform in line with the overall market. Our target price of $203.00, which is 24.3x our 2015 EPS estimate, reflects this view. Key Indicators F1 F2 Est. 5-Yr EPS Gr% P/CF 5-Yr High 5-Yr Low O'Reilly Automotive Inc. (ORLY) 23.2 20.3 16.0 24.2 26.3 27.6 16.8 Industry Average 21.0 23.8 15.3 15.9 37.6 86.3 18.3 S&P 500 16.3 15.4 10.7 15.0 18.8 19.4 12.0 Advance Auto Parts Inc. (AAP) 18.0 15.4 17.1 18.3 21.9 22.5 12.1 AutoZone Inc. (AZO) 17.0 15.1 13.2 14.8 18.6 19.0 12.9 Pep Boys - Manny, Moe & Jack (PBY) 22.1 21.8 N/A 5.6 94.3 109.1 16.2 U.S. Auto Parts Network, Inc. (PRTS) N/A 48.4 15.0 25.3 N/A 383.0 40.0 TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA O'Reilly Automotive Inc. (ORLY) 9.7 10.0 2.0 36.4 0.7 0.0 16.0 Industry Average 5.0 5.0 5.0 11.2 0.5 0.0 4.6 S&P 500 5.3 9.8 3.2 25.5 N/A 2.1 N/A Equity Research ORLY Page 4

Earnings Surprise and Estimate Revision History NOTE THIS IS A NEWS-ONLY UPDATE; THE REST OF THIS REPORT HAS NOT BEEN UPDATED YET. Equity Research ORLY Page 5

OVERVIEW O'Reilly Automotive Inc. (ORLY) is the third largest specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the U.S. The company sells products to both Do-it-Yourself (DIY) customers and Do-it-for-Me (DIFM) or professional installers. It sells an extensive line of products consisting of new and remanufactured automotive hard parts (such as mufflers, brakes and shock absorbers), maintenance items, accessories, a complete range of auto body paint and related materials, automotive tools and professional service equipment. The company has an over 20-year-long track record of following a dual-market strategy for serving both DIY and DIFM customers, and is among the top 3 in both the markets. O Reilly s acquisition of CSK Automotive Corporation in 2008 added stores in 12 new states: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Michigan, Nevada, New Mexico, Oregon, Utah and Washington, as well as a number of new markets in states where O Reilly had a presence before the acquisition. Prior to the acquisition, CSK Automotive Corporation was one of the largest specialty retailers of auto parts and accessories in the western U.S., and one of the leading retailers in the U.S. based on store count. The integration of CSK focuses on the implementation of O Reilly s dual-market strategy. This requires the conversion of the store and distribution information systems, enhancements to the distribution infrastructure and inventory offerings. The CSK acquisition added 1,342 stores to O Reilly s store count. As of Sep 30, 2014, O'Reilly operated 4,311 stores across 42 states in the U.S. REASONS TO BUY O Reilly aggressively pursues the opening of new stores for greater penetration in existing markets and to expand into new, contiguous markets. During the first nine months of 2014, O Reilly opened 145 net new stores. The total store count across 43 states stood at 4,311 as of Sep 30, 2014. Sales per weighted average-store increased to $435,000 in the third quarter of 2014 from $417,000 a year ago. Notably, the company plans to open a total of 200 stores in 2014 and 205 stores in 2015. O Reilly pursues an aggressive share repurchase policy, which continues to boost earnings per share. In Aug 2014, the company approved a $500 million increase in its share repurchase program, taking the total authorization to $4.5 billion. The increase in share repurchase authorization reflects O Reilly s strong liquidity position. This is the second increase in share repurchase authorization this year. In Feb 2014, O Reilly had authorized an increase of $500 million in the share repurchase program, taking the total authorization to $4 billion. During the first nine months of 2014, the company repurchased 4.6 million shares for $687 million, translating into an average price of $150.55. Subsequent to the end of the third quarter and through Oct 22, 2014, the company repurchased an additional 1 million shares for $156 million, implying an average price of $150.55. Since the inception of the share repurchase program in Jan 2011, O Reilly has repurchased a total of 46.2 million shares for $4.2 billion, indicating an average price of $90.84. As of Oct 22, 2014, the company had approximately $303 million worth of share repurchase authorization left under this repurchase program. For full-year 2014, the company raised the earnings per share guidance to $7.19 $7.263 from the previous estimate of $7.00 $7.10. O Reilly expects consolidated comparable store sales to increase 5% 6%, up from the previous estimate of 3.5% 5.5%. The company also raised the revenue guidance to $7.1 $7.2 billion from $7 $7.2 billion for 2014 and gross margin guidance to 51.2% Equity Research ORLY Page 6

51.4% from 50.9% 51.4%. Further, it raised the operating margin guidance to 17.3% 17.5% from the earlier guidance of 17.1% 17.5%. Free cash flow is expected between $675 million and $725 million, up from $625 $675 million guided previously for the year. O Reilly s distribution centers are poised to enhance the network and performance of the company. The distribution center in Lakeland has started operations and is providing daily inventory replenishments to 87 stores in the area. In September, O Reilly opened a new distribution center in Naperville, IL. This distribution center will allow the company to enhance its presence in the large and competitive Chicago land market. The Devens, MA, distribution center will be inaugurated by the end of 2014 to replace the distribution center in Lewiston, ME. O Reilly believes that these distribution centers will enhance the network and performance of the company, and provide opportunities for expansion of store base and market share. O Reilly has a competitive edge due to its dual-market strategy and is continuously benefiting from a strong distribution network. These dual-market stores are more productive and allow the company the scope to operate in smaller markets. Given its history as a commercial outlet, O Reilly has access to brands that are otherwise not sold through retail channels. REASONS TO SELL O Reilly s stores are concentrated in a few locations in the U.S. Approximately 26.5% of the company s stores are located in Texas and California. Therefore, its business is sensitive to the economic and weather conditions in these regions. Inclement weather discourages customers, particularly the DIY customers, from visiting stores. This has affected sales to a considerable extent in the past. O Reilly s cash position has deteriorated while capital expenditures are rising. O Reilly had cash and cash equivalents of $298.3 million as of Sep 30, 2014, down from $363 million as of Sep 30, 2013. Long-term debt was $1.4 billion as of Sep 30, 2014, at par with Sep 30, 2013. Meanwhile, capital expenditures (net) increased to $317.2 million from $299.5 million in the same period of 2013. O Reilly s strategy of lowering the time-to-market for its products in order to meet demand in the professional installer market places it at a logistical disadvantage against competitors such as AutoZone, Advance Auto Parts, NAPA, CARQUEST and the Pep Boys Manny, Moe and Jack. Much of O Reilly s cash is locked in inventories, which accounted for a significant 82% of current assets as of Sep 30, 2014. DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of ORLY. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The Equity Research ORLY Page 7

current distribution of Zacks Ratings is as follows on the 1120 companies covered: Outperform - 15.6%, Neutral - 76.9%, Underperform 6.8%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Analyst Copy Editor Content Ed. Lead Analyst QCA Reason for Update Kamalika Sinha Sweta Goenka Anindya Barman Analyst Note Equity Research ORLY Page 8