We are reiterating our Outperform recommendation
Penske Automotive Group Inc.
). The company continues to benefit from strong foothold in
both the U.S. and overseas markets owing to the wide range of
imported and luxury brands.
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Penske witnessed a 41% year over year increase in earnings to 55
cents per share in the first quarter of 2012, surpassing the Zacks
Consensus Estimate by 7 cents. The increase in profit was
attributable to strong performance of the company in both the U.S.
and international markets.
Revenues escalated 17.9% year over year to $3.2 billion. An 18.1%
increase in retail unit sales and improvement in the company's used
to new vehicle ratio led to the improved results.
The company expects its revenues to increase roughly $525 million
on an annualized basis owing to the acquisition of dealerships. It
acquired seven franchises in 2011 including Crevier BMW-MINI, in
Santa Ana, California, and Mercedes-Benz of Greenwich, Connecticut.
Penske is returning value to its shareholders by increasing the
dividend payout and repurchasing shares. Dividend payment has
increased from 7 cents per share in the second quarter of 2011, to
11 cents per share as of Mary 8, 2012. The improvement in dividend
payouts reflects the company's improved performance and strong
The company's share repurchase strategy will also drive its
earnings. It has repurchased shares worth $106.8 million in 2011.
Moreover, in the first quarter of 2012, 350,000 shares were
repurchased for $8.5 billion.
However, Penske is under pressure from the other franchised
automotive dealerships and service centers owned by OEMs. The OEMs
are undergoing expansion in order to increase the consumer base and
establish direct contact with them.
Bloomfield Hills, Michigan-based Penske is the second-leading
automotive retailer in the U.S. The company sells new and
previously owned vehicles along with finance and insurance product.
.Apart from its franchises in the U.S. and Europe, the company
offers repair and maintenance services for the brands it sells. It
Our long-term recommendation is backed by a Zacks #2 Rank, which
translates into a short-term (1 to 3 months) Buy rating.