We are upgrading Penske Automotive to Outperform from Neutral based
on the company's improved performance in first-quarter 2014. The
company's earnings in the quarter improved 15.9% to $0.73,
surpassing the Zacks Consensus Estimate by $0.01. The improvement
was driven by favorable impacts from brand mix and geographical
diversification of its revenue base. Revenues grew 20.9% year over
year to $4.05 billion, beating the Zacks Consensus Estimate of $3.7
billion. The beat can be attributed to increased total retail
sales. Penske Automotive is poised to benefit from increasing
dealerships, rising sales of new vehicles and a strong financial
Penske Automotive Group Inc., based in Bloomfield Hills, MI, was
established in 1990 and is the second largest automotive retailer
in the U.S. As of Mar 31, 2014, the company operated 175 franchises
in the U.S. and 148 franchises outside the U.S., primarily in the
U.K. Also, the company offers 35 different brands.
In addition to selling new and used vehicles, Penske Automotive
sells higher margin products, such as finance, insurance and
vehicle service contracts maintenance repair services replacement
parts and aftermarket automotive products. In the first quarter of
2014, New Vehicle represented 50.1% of the total revenue, Used
Vehicle 29.7%, Service and Parts 10.3%, Fleet and Wholesale Vehicle
4.6%, Finance & Insurance 2.6%, and Commercial Vehicle and Car
In the first quarter of 2014, Penske Automotive generated 59% of
the total automotive dealership revenue in the U.S. and Puerto Rico
and 41% outside the U.S. Also, 72% of automotive dealership
revenues have been generated from premium brands such as Audi, BMW,
Mercedes-Benz and Porsche.
The company does not have any cost advantage from New Vehicle
sales as it purchases directly from manufacturers and thus competes
primarily with other franchised dealers in marketing areas. For
Used Vehicle sales, Penske Automotive competes with other
franchised dealers, independent used-vehicle dealers, automobile
rental agencies, online purchasing services, private parties and
Penske Automotive Group, Inc. (PAG): Read the Full
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