Penske Automotive Group (
Diversity and a strong brand are two integral cogs in the
success machine. Penske has both. What you might not
know is that Penske is the second largest public traded auto
retailer in the US by revenues. They operate about 166
franchises in the US, about 170 overseas and their automotive
division is seeing favorable trends.
I knew them as a truck rental company, but there is much more to
this transportation services business than you might think.
Penske Automotive reported their most profitable year in
company history and offered some bullish commentary going into
fiscal 2012 which might just help propel the stock higher…
Penske is a diversified transportation services group that
encompasses retail automotive sales and services, truck leasing,
supply chain logistics management, transportation components
manufacturing, and high-performance racing. In their auto
division alone, they handle 40 different brands from Bugatti,
Ferrari and Maserati to BMW and Acura with over 25,000 cars in
They also offer service plans on the vehicles they sell, which
helps add to their revenue and keep their customers happy.
At their last report, the automotive group alone saw an 11%
quarterly jump in revenue with same-store retail revenue up 6%,
which equated to a 24% rise in EPS to 47 cents a share.
Perhaps consumers are actually getting healthier…
I believe that government and third-party reports and surveys on
consumer health should be supported by trends in the earnings of
real consumer companies like Penske. Based on their results, it's
hard to argue that consumers are indeed spending in some
In their other divisions, Penske offers trucking and logistical
management solutions to all types of consumers and
enterprises. For example, a business owner can buy a fleet of
trucks from Penske and have them provide all the maintenance and
management of the fleet, removing a major burden from the business
owner. With in-house financing solutions, they have
flexibility when working with customers in a tough economic
They also own and operate 'Davco,' which provides fuel
processing and fluid level management as well as 'Truck-lite,' a
company that provides visibility systems for truckers around the
world. Of course they still have their racing team, which is
one of the most successful in history with over 330 major race wins
in different classes and which provide innovation, support and
advertizing for the company.
PAG is a small-cap (2.17 billion) company that is trading at about
12 times forward (expectations for next quarter) earnings. This low
valuation coupled with their strong growth could be a force that
moves the stock higher.
PAG became a Zacks Rank #1 Strong Buy on February 18th after
their strong results.
The automotive company as a whole reported a quarterly sales
increase of 0.27% at their last earnings report and saw a 6% drop
in EPS for the same period. Annual sales were up 7% compared
to the prior year, with total sales of roughly 11.6 billion in
FY2011. Penske earnings jumped from a $1.18 in FY2010 to
$1.91 in FY2011. PAG is expected to earn $1.95 in FY2012
according to the Zacks Consensus Estimate.
In 2011, Penske acquired 2,449,768 shares of its common stock at
an average price of $18.07 per share ($44.3 million). The
Company currently has remaining authorization from its Board of
Directors to repurchase up to $106.8 million of its outstanding
common stock. This action can be viewed as confidence in
their future performance.
Penske posted higher-than-expected earnings last quarter.
They said they continue to see improvement in the automotive
industry since the 2008-09 crisis.
They saw average gross profit per new vehicle rise 8.4% and
average vehicle prices also move higher by 4.4% to $38,800.
It's important to note that 70% of Penske's auto sales are premium
Expectations are for PAG to generate $0.46 in income this
quarter. Of the 12 analysts who cover PAG, the consensus is
for the company to grow earnings by 8.4% in the current year
(FY2012) and roughly 13% in FY2013.
In terms of the magnitude of analyst estimate trends, we are
seeing short-term (current and next quarter) consensus estimates
lower than they were 60 days ago and higher for the current and
Penske has managed to beat consensus estimates for the past four
quarters at an average of about 2%.
Market Performance & Technicals
Penske tends to be closely correlated and more volatile when
compared to the broad market, with a Beta of 2.10.
Like most quality stocks in the S&P 500, Penske has been
building a great deal of momentum over the past two months.
If you go back to the end of 2010, this was a $13.00 stock, so it
has come quite a ways.
Even before the last earnings reports, PAG broke out above both
the 50- and 200-day moving averages and has continued to rise in
the past couple weeks. The report initially sent shares
lower, but they have since stabilized. PAG is now firmly
above its 50- and 200-day moving averages of $21.38 and $20.20,
respectively. The recent consolidation has developed some
support at the $23.25 level, but I would look more to the $22 line
for real support in a selloff.
PAG has exceeded the S&P 500's performance by over 12% in
the past year and over 11% just in the past 3 months. With
the recent run-up into their report, they managed to return 5% more
than the broad market over the past four weeks. Penske is
another consumer-driven story. If data remains favorable, PAG
should have some serious upside. On the pullbacks, you may
experience some uncomfortable acceleration in this high Beta
Jared A Levy is the Momentum Stock Strategist for Zacks.com. He
is also the Editor in charge of the market-beating Zacks Whisper
PENSKE AUTO GRP (
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