On Jan 29, we downgraded
Penske Automotive Group Inc.
) to Neutral from Outperform. The downward revision was based on
increasing competition, high inventory level and negative impact
of foreign exchange rates. However, the company is poised to
benefit from recent acquisitions, rising sales of new vehicles
and a strong financial position.
AUTONATION INC (AN): Free Stock Analysis
LITHIA MOTORS (LAD): Free Stock Analysis
PENSKE AUTO GRP (PAG): Free Stock Analysis
TOYOTA MOTOR CP (TM): Free Stock Analysis
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Why the Downgrade?
On Oct 29, Penske posted a 21.7% increase in adjusted earnings
per share to 73 cents in the third quarter of 2013 from 60 cents
in the corresponding quarter of 2012. The results also exceeded
the Zacks Consensus Estimate by 3 cents.
Revenues improved 14.6% year over year to $3.8 billion, beating
the Zacks Consensus Estimate of $3.7 billion. The year-over-year
rise in revenues was driven by increase in retail sales.
Following the release of the third-quarter results, the Zacks
Consensus Estimate for Penske's 2013 earnings increased 0.7% to
$2.72 per share. The Zacks Consensus Estimate for 2014 rose 1.3%
to $3.18 per share. Currently, Penske carries a Zacks Rank #4
Penske Automotive is expected to benefit from the acquisitions of
dealerships of Frank Smith Toyota-Scion of
Toyota Motor Corporation
) and Hyundai in Pharr, Texas. These dealerships are expected to
generate additional revenues of $200 million annually. Penske
expects these dealerships to complement the existing dealerships
in Austin, Houston, and Round Rock, Texas.
Penske Automotive has been benefiting from increased new vehicle
sales over the past few years. The company expects the U.S. and
U.K. automotive market to perform well in the future. This will
enhance its business opportunities.
Penske Automotive competes with other franchised automotive
), private market buyers and sellers of used vehicles. Rising
competition and increasing price transparency is expected to lead
to lower selling prices thereby affecting the profits of the
company. We are also concerned about the huge merchandise
inventory. As of Sep 30, 2013, the company's inventory comprised
75.5% of current assets.
Other Stocks to Consider
Lithia Motors Inc.
) carrying a Zacks Rank #2 (Buy) is performing well in the auto
and truck industry.