Stock Analysis on Net
Stock Analysis on Net

O’Reilly Automotive Inc. (NASDAQ:ORLY)

This company has been moved to the archive! The financial data has not been updated since November 8, 2022.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

O’Reilly Automotive Inc., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 12.84%
01 FCFF0 2,891,672
1 FCFF1 4,032,228 = 2,891,672 × (1 + 39.44%) 3,573,433
2 FCFF2 5,298,895 = 4,032,228 × (1 + 31.41%) 4,161,657
3 FCFF3 6,538,008 = 5,298,895 × (1 + 23.38%) 4,550,582
4 FCFF4 7,541,930 = 6,538,008 × (1 + 15.36%) 4,652,051
5 FCFF5 8,094,448 = 7,541,930 × (1 + 7.33%) 4,424,760
5 Terminal value (TV5) 157,577,696 = 8,094,448 × (1 + 7.33%) ÷ (12.84% – 7.33%) 86,138,488
Intrinsic value of O’Reilly Automotive Inc. capital 107,500,972
Less: Long-term debt (fair value) 4,135,629
Intrinsic value of O’Reilly Automotive Inc. common stock 103,365,343
 
Intrinsic value of O’Reilly Automotive Inc. common stock (per share) $1,651.84
Current share price $833.51

Based on: 10-K (reporting date: 2021-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

O’Reilly Automotive Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 52,157,648 0.93 13.64%
Long-term debt (fair value) 4,135,629 0.07 2.75% = 3.62% × (1 – 23.95%)

Based on: 10-K (reporting date: 2021-12-31).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 62,575,911 × $833.51
= $52,157,647,577.61

   Long-term debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (22.19% + 22.68% + 22.30% + 21.82% + 30.77%) ÷ 5
= 23.95%

WACC = 12.84%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

O’Reilly Automotive Inc., PRAT model

Microsoft Excel
Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in thousands)
Interest expense 144,768 161,126 139,975 122,129 91,349
Net income 2,164,685 1,752,302 1,391,042 1,324,487 1,133,804
 
Effective income tax rate (EITR)1 22.19% 22.68% 22.30% 21.82% 30.77%
 
Interest expense, after tax2 112,644 124,583 108,761 95,480 63,241
Interest expense (after tax) and dividends 112,644 124,583 108,761 95,480 63,241
 
EBIT(1 – EITR)3 2,277,329 1,876,885 1,499,803 1,419,967 1,197,045
 
Long-term debt 3,826,978 4,123,217 3,890,527 3,417,122 2,978,390
Shareholders’ equity (deficit) (66,423) 140,258 397,340 353,667 653,046
Total capital 3,760,555 4,263,475 4,287,867 3,770,789 3,631,436
Financial Ratios
Retention rate (RR)4 0.95 0.93 0.93 0.93 0.95
Return on invested capital (ROIC)5 60.56% 44.02% 34.98% 37.66% 32.96%
Averages
RR 0.94
ROIC 42.04%
 
FCFF growth rate (g)6 39.44%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

1 See details »

2021 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 144,768 × (1 – 22.19%)
= 112,644

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 2,164,685 + 112,644
= 2,277,329

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [2,277,329 – 112,644] ÷ 2,277,329
= 0.95

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 2,277,329 ÷ 3,760,555
= 60.56%

6 g = RR × ROIC
= 0.94 × 42.04%
= 39.44%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (56,293,277 × 12.84% – 2,891,672) ÷ (56,293,277 + 2,891,672)
= 7.33%

where:

Total capital, fair value0 = current fair value of O’Reilly Automotive Inc. debt and equity (US$ in thousands)
FCFF0 = the last year O’Reilly Automotive Inc. free cash flow to the firm (US$ in thousands)
WACC = weighted average cost of O’Reilly Automotive Inc. capital

FCFF growth rate (g) forecast

O’Reilly Automotive Inc., H-model

Microsoft Excel
Year Value gt
1 g1 39.44%
2 g2 31.41%
3 g3 23.38%
4 g4 15.36%
5 and thereafter g5 7.33%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 39.44% + (7.33% – 39.44%) × (2 – 1) ÷ (5 – 1)
= 31.41%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 39.44% + (7.33% – 39.44%) × (3 – 1) ÷ (5 – 1)
= 23.38%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 39.44% + (7.33% – 39.44%) × (4 – 1) ÷ (5 – 1)
= 15.36%