According to Reuters, Standard & Poor's (S&P) Ratings
Services has upgraded the corporate credit rating of
Penske Automotive Group Inc.
) to 'BB-' from 'B+' based on the company's improved credit
measures with future betterment potentiality and flexible cash
flows. S&P has also raised the issue ratings on the company's
7.75% senior subordinated notes and 3.5% subordinated convertible
notes to 'B' from 'B-.'
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The rating agency remains consistent with the recovery ratings at
'6,' which indicates 0-10% recovery to the lenders in case of
payment default. It has rendered a stable outlook for Penske based
on the company's business model, financial policy and operating
records. Diverse revenue stream and flexible cost structure ensure
a strong business profile for the company.
S&P believes that Penske has the opportunity for improving
financial credit measures. Supply constrains of new and used
vehicles will pull up the prices of the vehicles. Increase in
demand from customers for new or nearly new vehicles will be
boosting auto purchase.
Penske had cash and cash equivalents of $31.8 million as of March
31, 2012, an improvement from $28.5 million as of March 31, 2011.
Long-term debt amounted to $848.6 million as of March 31, 2012.
Penske, in the first quarter of 2012, witnessed a 41% increase in
earnings to 55 cents per share from 39 cents a year ago. The
results surpassed the Zacks Consensus Estimate by 7 cents. The
higher profit was attributable to strong performance in both the
U.S. and international markets.
Total revenues escalated 17.9% year over year to $3.2 billion. The
growth was driven by an increase in retail unit sale and
improvement in the company's used to new vehicle ratio.
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.
The company's product mix, including a wide range of imported and
luxury brands, helps it maintain a strong foothold in both the U.S.
and international markets. It competes with
Currently, Penske retains a Zacks #1 Rank, which translates into a
short-term (1 to 3 months) Strong Buy rating. We have a long-term
(more than 6 months) Outperform recommendation on the stock.