On May 1, we maintained our Neutral recommendation on
Penske Automotive Group Inc.
) based on its wide range of imported and luxury brands, which
helps it to maintain a strong foothold in the U.S. and overseas
markets. However, we are concerned about the challenging market
condition for new and used cars and rising competition from the
retail and service centers owned by original equipment
On Apr 29, Penske posted a 14.5% increase in earnings per share
to 63 cents in the first quarter of 2013 from 55 cents in the
corresponding quarter last year. Earnings in the quarter exceeded
the Zacks Consensus Estimate by a penny.
Revenues improved 7.7% to $3.40 billion, missing the Zacks
Consensus Estimate of $3.45 billion. The year-over-year rise in
revenues was driven by a 9.9% increase in retail sales to 85,821
Following the release of the first quarter results, the Zacks
Consensus Estimate for fiscal 2013 decreased 0.39% to $2.55 per
share. The Zacks Consensus Estimate for fiscal 2014 remained flat
at $2.85 per share. Currently, Penske maintains a Zacks Rank #3
Penske benefits from its diversified revenue stream. A
significant portion of the company's profit comes from
higher-margin service and parts sales, which are less cyclical
than retail vehicle sales and thus lends stability to the
In addition, the company benefits from its expansion strategy. It
has expanded its global presence by closing acquisitions in
Northern Ireland and Italy. It has also expanded its footprint
domestically by entering the Madison, WI market.
However, the company faces tough competition from the retail as
well as service centers owned by OEMs. In addition, the retail
vehicle market in the U.S. remains challenging for both new and
used car sales volume.
Other Stocks to Look For
Some other stocks that are performing well in the industry where
Penske operates include
Asbury Automotive Group, Inc.
Lithia Motors Inc.
). All these companies carry a Zacks Rank #2 (Buy).
ASBURY AUTO GRP (ABG): Free Stock Analysis
AUTONATION INC (AN): Free Stock Analysis
LITHIA MOTORS (LAD): Free Stock Analysis
PENSKE AUTO GRP (PAG): Free Stock Analysis
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