Penske Automotive Group, Inc. - Value

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What European slowdown? Penske Automotive Group, Inc. ( PAG ) recently reported the most profitable first quarter in the auto retailer's history. Earnings are expected to grow in the double digits in 2012. Yet this Zacks #1 Rank (Strong Buy) also has attractive valuations with a forward P/E of just 11.4.

Penske is the second largest auto retailer in the United States measured by revenue. As of Jan 12, 2012, it operated 335 retail automotive franchises handling 42 different brands and 29 collision repair centers.

Headquartered in Michigan, it sells new and used cars, offers financing and insurance products and replacement parts and also provides maintenance and repair services on all of the brands it services.


The company has 166 franchises in 17 states and Puerto Rico and 169 international franchises, mainly in the United Kingdom.

A Record First Quarter

On Apr 25, Penske reported first quarter results and blew by the Zacks Consensus Estimate by 14.6%. Earnings per share were 55 cents compared to the consensus of just 48 cents.

Penske has an impressive earnings surprise streak going. This was the 9th straight earnings surprise.

Sales climbed 17.9% to $3.2 billion due to improvement in total retail unit sales of 18.1% and growth in the company's used-to-new ratio versus last year.

In the United States, unit sales rose 12.3%. Internationally they jumped 30.7%.

Used retail sales were hotter than new, as used gained 26.6% compared to new sales rising just 11.5%.

Same-store sales rose 8.5% in the United States. Even internationally, where you would expect slowing given the global economic challenges, same store sales still managed to rise 5.9%.

Analysts Are Bullish About 2012

In the last 30 days, 11 estimates have been raised for 2012 which has pushed the Zacks Consensus Estimate up 7% to $2.17 from $2.02 in that time.

That is 21% earnings growth as the company earned just $1.80 in 2011.

Shares Hit 5-Year High

After the estimate beat in the first quarter, shares surged to new 5-year highs. They have since retreated slightly as the rest of the stock market has weakened.

But despite the new highs, Penske still has plenty of value.

In addition to a P/E under 15, which is the cut-off I use for value stocks, it also has a price-to-book ratio of 1.9. A P/B ratio under 3.0 usually indicates value.

Penske has other value metrics including a price-to-sales ratio of only 0.2. That is really low. A P/S ratio under 1.0 can mean a company is undervalued. The average P/S ratio of the S&P 500, by comparison, is 1.8.

Penske also rewards shareholders with a dividend, currently yielding 1.8%.

Penske is a way to profit from America's love affair with the car. Investors get value with double digit earnings growth. That is a rare combination.

Tracey Ryniec is the Value Stock Strategist for Zacks.com . She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at @TraceyRyniec .


 
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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.



This article appears in: Investing , Stocks

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