Penske Automotive Group, Inc. (PAG): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
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 position.

Overview:

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 Rental 2.7%.

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 used-vehicle superstores.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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As of 7/29/2014, 02:37 PM