On Aug 16, we maintained our Neutral recommendation on
Penske Automotive Group, Inc.
). We appreciate the company's improved performance in the second
quarter of 2013. The company is expected to benefit from the
increasing sales of new vehicles and acquisition of Western Star
Trucks Australia business. However, we are concerned about the
Why the Reiteration?
On Jul 31, Penske posted a 26.8% year-over-year increase in
earnings per share to 71 cents in the second quarter of 2013. The
results also exceeded the Zacks Consensus Estimate by 6 cents.
Revenues improved 11.6% year over year to $3.7 billion, beating
the Zacks Consensus Estimate of $3.6 billion. The year-over-year
rise in revenues was driven by a 14.1% increase in retail sales
to 93,639 units.
Following the release of the second-quarter results, the Zacks
Consensus Estimate for fiscal 2013 increased 3.5% to $2.65 per
share. Moreover, the Zacks Consensus Estimate for fiscal 2014
rose 4.2% to $3 per share.
Penske has been benefiting from the increase in sales of new
vehicles over the past few years. During the first half of 2013,
unit sales rose 10.6% to 97,270 units. The company expects the
U.S. automotive market to improve further based on rising demand
in the marketplace, increase in aging vehicle population, strong
credit environment for consumers, together with introduction of
new models by many different vehicle brands.
On Jul 28, Penske announced that it will be acquiring the Western
Star Trucks Australia business from Transpacific Industries Group
Limited. Penske will have favorable impacts from Western Star
Trucks' strong market dynamics, multiple growth options and
well-established dealer network, which is one of the largest in
Australia and New Zealand. After the completion of the
acquisition in the third quarter of 2013, Penske is expected to
generate added revenues of $420-$460 million. The acquisition is
expected to enhance earnings per share by 10 cents to 14 cents
However, Penske faces tough competition from other franchised
automotive dealerships, private market buyers and sellers of used
vehicles, internet-based vehicle brokers, national and local
service and repair shops and parts retailers and automotive
manufacturers. Rising competition together with increasing price
transparency will lead to lower selling prices and are the
headwinds for the company's profitability.
Other Stocks to Look For
Currently, Penske retains a Zacks Rank #2 (Buy).
Some other stocks that are performing well in the industry where
Penske operates include
Asbury Automotive Group, Inc.
Lithia Motors Inc.
Group 1 Automotive Inc.
). Asbury and Lithia are Zacks Rank #1 (Strong Buy) stocks, while
Group 1 carries a Zacks Rank #2 (Buy).
ASBURY AUTO GRP (ABG): Free Stock Analysis
GROUP 1 AUTO (GPI): Free Stock Analysis
LITHIA MOTORS (LAD): Free Stock Analysis
PENSKE AUTO GRP (PAG): Free Stock Analysis
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