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What Justifies Penske's (PAG) Bullish Stance at the Moment?

Penske Automotive Group, Inc. PAG has been witnessing a solid run on the bourse, of late.

Its shares have appreciated 10.4% quarter to date, outperforming the broader industry gain of 9.4%. Also, Penske Automotive currently carries a Zacks Rank #2 (Buy) and has an attractive VGM score of A.


 
The company has been witnessing northbound earnings estimate revisions, of late. The Zacks Consensus Estimate for the third-quarter earnings witnessed an upward revision of 45.3% over the past 90 days. The consensus mark moved 51.1% north for 2020. The Michigan-based auto retailer has an impressive earnings surprise history as well, having topped estimates in three of the trailing four quarters and matching in the other, the average surprise being 1.68%.

A successful investor understands the importance of adding well-performing stocks to the portfolio at the right time. Investors will not regret buying this stock right now because of the below-mentioned positive drivers:

Penske Automotive’s diversified business segments, which include heavy duty truck retailing/leasing position it well. Its favorable brand mix with solid off-lease opportunities, along with the use- vehicle expansion strategy, is likely to boost earnings in the upcoming period.
 
The firm has become one of the largest dealership groups for Freightliner in North America, with the acquisition of Warner Truck Centers, representing six dealership locations in Utah and Idaho, including a flagship operation in Salt Lake City. The acquisition of Warner Truck Centers nearly doubled its retail commercial truck dealership revenues and accelerated the company’s diversification, while opening up opportunities for growth and increased profitability.

Moreover, social-distancing and sanitization measures brought on by the coronavirus pandemic have prompted dealerships to find ways for conducting businesses remotely. In such a scenario, rising e-commerce initiatives are helping Penske Automotive boost its sales. The firm’s move to increase its digital performance rates, and increased online sales through home delivery and clicks and collect initiatives have helped generate revenues.

Penske Automotive is also currently trading with a P/E ratio of 9.82, which compares favorably to its industry average of 10.44. This makes the company a value stock for investors. A value stock implies stocks trading lower than its fair price or intrinsic value, thus offering a significant upside potential making it attractive to potential investors.
 
Meanwhile, the company engages in share buybacks in almost every quarter which boosts investors’ confidence. A number of auto companies have suspended buybacks in the wake of the pandemic. However, Penske Automotive has maintained its share-repurchase program, preserving shareholders’ values. The company repurchased 1,023,288 shares as of Jun 30, 2020 for $34.2 million. As of Jun 30, 2020, Penske Automotive had a share-repurchase authorization of $170.6 million.

During the April-June quarter, Penske Automotive had suspended its cash dividends to help mitigate the impact of the pandemic. Nonetheless, with the business gradually recovering, the company announced the decision to reinstate its dividend on Oct 14, rewarding a cash dividend of 42 cents per share. The dividend is payable on Dec 1 to shareholders of record as of Nov 10, 2020, which will further enhance investor confidence in the company.

Other Key Picks

Other top-ranked companies in the auto space include Lithia Motors LAD, Group 1 Automotive GPI and Titan Machinery TITN. All three currently flaunt a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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Penske Automotive Group, Inc. (PAG): Free Stock Analysis Report
 
Lithia Motors, Inc. (LAD): Free Stock Analysis Report
 
Group 1 Automotive, Inc. (GPI): Free Stock Analysis Report
 
Titan Machinery Inc. (TITN): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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