Investors Mosaic Fundamental Analysis

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Auto Aftermarket Fundamentals Remain Strong Due to Increasing of Age of Vehicle Population

Source: O’Reilly Auto Parts Investor Day Presentationinvestorsmosaic.com

There is Room for the Industry Leaders to Continue Taking Market Share from “Mom & Pops”

Source: O’Reilly Auto Parts Investor Day Presentation

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The Industry is Large, But Growth is Only Moderate at 1.0% - 2.0% a Year.

Source: O’Reilly Auto Parts Investor Day Presentation

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O’Reilly’s Sales Performance Remains Rock Solid Due to Favorable Macro Backdrop

• The company benefits from a relatively even split of DIY and DIFM business.

• The DIFM market is growing faster as fewer people have desire to work on their own cars.

• But DIY is doing fine as the soft economy forces people to hold onto their vehicles longer and do more work themselves to save money.

• Management is laser-like focused on enhancing productivity & providing superior customer service

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The Business Model is Scaling Beautifully With Room for Improvement as CSK Stores Mature

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Soft Real Estate Market and Labor Market is Enabling Lower Store Rents and Keeping a Lid on Wages

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• The soft economy has helped O’Reilly improve their margin structure dramatically over the past few quarters. These tailwinds should persist for several more quarters.

• Furthermore, O’Reilly has plenty of room to improve the performance of the CSK stores they purchased 3 years ago as they instill the O’Reilly culture.

Favorable Balance Sheet Changes Accelerating Free Cash Flow and Improving Return on Capital

• O’Reilly is taking a page from AutoZone’s playbook and focusing on squeezing cash out of the supplier base by leveraging their own strong credit profile.

• Furthermore, management is very focused on removing excess inventory from the CSK stores. This has improved Inventory turns.

• Overall, these changes generate cash and improve ROIC, both of which are very favorable for equity valuation.

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The Company is Starting to Generate Gobs of Free Cash Flow Which Will Go Towards Big Stock Buyback

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Financial Summary

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Our Valuation Analysis Suggests Fair Value is $94 Based on 2012 EPS.

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