Morgan Stanley Trims O'Reilly Auto (ORLY) Target Price to $108, Due To Rising Costs

O’Reilly Automotive Inc. (NASDAQ:ORLY) is one of the 14 Best Consumer Discretionary Stocks to Buy Right Now.

On February 9, Morgan Stanley trimmed its target price on O’Reilly Automotive by 1.8% to $108 (from $110), while keeping its Overweight call on the stock. This price target update was a result of the firm reducing its 2026 and 2027 EPS forecasts for ORLY by 4% and 3.5%, respectively, due to rising cost pressures (specifically medical and casualty self-insurance costs), which were evident in the company’s 4th quarter results.

O’Reilly released its Q4 2025 earnings report on February 4, which showed 9.8% YoY growth in net income to $605.2 million (from $551.1 million). On a per diluted share basis, earnings grew 12.7% YoY to $0.71 (from $0.63). Earnings growth was driven primarily by sales growth, which offset a slight uptick in costs.

Sales grew 7.8% YoY to $4.4 billion (from $4.1 billion). Growth was balanced, with 5.6% coming from same-store sales growth. The rest of the growth came from store count expansion, with 207 net store additions YoY, bringing the company’s total store footprint to 6,585 (from 6,378).

The uplift from sales offset the 80-basis point YoY erosion in operating profit margins (from 18.8% to 18.0%). 50 out of the 80-basis-point contraction came from an uptick in cost of sales (from 51.3% of sales to 51.8%). The rest came from higher selling, general, and administrative expenses (from 33.0% of sales to 33.3%), specifically from higher team member health care and casualty claim costs.

Management also provided its guidance for 2026. They expect 225 to 235 net store additions and 3.0% to 5.0% YoY growth in same-store sales, which would yield revenue growth of around 5.2% to 6.9%. This revenue growth would bring full-year revenue to $18.7 billion to $19.0 billion. Management is targeting gross profit margins of 51.5% to 52.0% and operating profit margins of 19.2% to 19.7%, resulting in diluted earnings per share of $3.10 to $3.20.

O’Reilly Automotive Inc. (NASDAQ:ORLY) is a retail outlet operator engaged in the distribution and retail of automotive aftermarket parts, equipment, supplies, and accessories. The company is based in Springfield, Missouri, and was founded in November 1957 by Charles F. O’Reilly and Charles H. O’Reilly.

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Disclosure: None. This article is originally published at Insider Monkey.