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Chicago, IL – October 21, 2025 – Today, Zacks Equity Research discusses O'Reilly Automotive ORLY and Advance Auto Parts AAP.
Link: https://www.zacks.com/commentary/2772060/2-auto-parts-retailers-that-could-outperform-despite-pressure
The Zacks Automotive - Retail and Wholesale - Parts industry is facing challenges at the moment. After a strong third quarter of 2025, vehicle sales are expected to cool as electric vehicle (EV) incentives expire. Additionally, prices of new vehicles are high, which is expected to deter buyers, denting near-term demand for parts and accessories. At the same time, growing vehicle complexity is shifting repairs from do-it-yourself consumers to professional service providers, reshaping the market's structure.
While the aging U.S. vehicle fleet continues to support aftermarket demand, elevated capital requirements tied to electrification, digital transformation and store expansion are weighing on profitability. O'Reilly Automotive and Advance Auto Parts are two industry players that are relatively better poised to navigate this dynamic industry environment.
The Zacks Automotive - Retail and Wholesale - Parts industry players execute several functions. These include retailing, distribution and installation of vehicle parts, equipment and accessories. Vehicle parts and accessories include seat covers, antifreeze, engine additives, wiper blades, batteries, brake system components, belts, chassis parts, driveline parts, engine parts and fuel pumps.
Consumers have two options. They can either opt for repairing vehicles on their own (the 'do-it-yourself' or 'DIY' segment) or take the assistance of a professional repair facility (the "do-it-for-me" or "DIFM" segment). The industry is highly competitive and undergoing a radical change, with evolving customer expectations and technological innovation acting as game changers.
Vehicle Sales Expected to Soften: U.S. auto sales were strong in the third quarter of 2025, driven by a rush to buy EVs before federal incentives expired. Automakers also managed tariff challenges well, helping sustain momentum. But this pace isn't expected to last. As EV demand cools and high vehicle prices squeeze buyers, many are likely to delay purchases. Slower new vehicle sales could ripple through the auto retail parts market, softening demand for auto parts and accessories in the near term.
Technology Changing RepairDynamics: Modern vehicles are packed with advanced electronics and specialized systems, making repairs more complex than ever. As a result, fewer people are doing repairs themselves, shifting toward professional services instead. This trend is shrinking the DIY segment but expanding the DIFM side of the industry. Parts suppliers and service providers that cater to professional mechanics stand to benefit, even as traditional retail sales to individual consumers decline.
High Capital Demands Challenge Profitability: Keeping up with the fast-changing auto landscape requires heavy investment. Companies must spend big on new technologies, such as EVs and autonomous systems, as well as on expanding distribution networks and improving online platforms. While these efforts are essential for long-term growth, they strain cash flow and squeeze profit margins. Balancing innovation with cost control has become a key challenge for auto parts retailers and manufacturers alike.
Aging Vehicles Fuel Auto Parts Demand: The average U.S. vehicle age has reached an all-time high of 12.8 years, per S&P Mobility. This creates a steady demand for replacement parts and maintenance. Older vehicles need more frequent servicing, which is good news for the aftermarket. Many consumers are choosing to maintain their current cars rather than buy new ones, keeping business strong for parts retailers and repair shops. This aging fleet trend is a bright spot for the industry amid other headwinds.
The Zacks Auto Retail & Wholesale Parts industry is within the broader Zacks Auto-Tires-Trucks sector. The industry currently carries a Zacks Industry Rank #184, which places it in the bottom 24% of 245 Zacks industries.
The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are getting pessimistic about this group's earnings growth potential.
Before we present a few stocks that could still be on your watchlist, let's take a look at the industry's shareholder returns and current valuation first.
The Zacks Auto Retail and Wholesale Parts industry has underperformed the Auto, Tires and Truck sector and the Zacks S&P 500 composite over the past year. The industry has risen 15.5% over this period compared with the S&P 500's growth of 16.2%. The sector has surged 48.1% in the same time frame.
Since automotive companies are debt-laden, it makes sense to value them based on the Enterprise Value/ Earnings before Interest, Tax, Depreciation and Amortization (EV/EBITDA) ratio.
Based on the trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 28.47X compared with the S&P 500's 18.49X and the sector's 23.41X.
Over the past five years, the industry has traded as high as 30.96X and as low as 21.41X, with the median being 24.71X.
O'Reilly Automotive: The company stands out as one of the leading players in the U.S. aftermarket auto parts industry, boasting 32 consecutive years of record revenue growth. Its success is driven by an aggressive store expansion strategy, a robust distribution network and a strong commitment to customer service. In the first half of 2025, the company added 105 net new stores across 34 U.S. states, Puerto Rico and Mexico, with strong contributions from both new and existing markets.
O'Reilly plans to further ramp up inventory levels across stores, hubs, and distribution centers to enhance product availability and meet demand efficiently. The company also remains shareholder-friendly, repurchasing 13.3 million shares in the first six months of 2025.
O'Reilly Automotive currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2025 EPS and sales indicates a year-over-year uptick of 8% and 6%, respectively. The consensus mark for 2026 EPS and sales suggests growth of 12% and 7% from 2025 projected levels, respectively.
Advance Auto: The company primarily sells replacement parts, accessories, batteries, and maintenance items for domestic and imported vehicles, including cars, SUVs, and light- and heavy-duty trucks. AAP's sale of its Worldpac business to The Carlyle Group for $1.5 billion in late 2024 strengthened liquidity and allowed renewed focus on its core operations, particularly its advanced blended box model.
This sharper focus should drive stronger execution and more targeted decision-making. In March 2025, Advance Auto completed its store footprint optimization program, positioning the company to operate more efficiently across its retail network. Ongoing efforts to consolidate its supply chain into a unified network are also expected to streamline operations and lower costs.
Advance Auto currently carries a Zacks Rank #3. The Zacks Consensus Estimate for its 2025 EPS implies year-over-year growth of a whopping 725%. The consensus mark for 2026 EPS suggests growth of 60.5% from 2025 projected levels.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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