The demand for private vehicles is rising as the COVID-19 omicron variant cases surge. This, together with the ongoing semiconductor shortage and supply chain constraints that have been hampering the production of new vehicles, are causing used car prices to rise.
Referring to the Manheim index of used car prices, market researcher Jim Bianco said on Dec. 26, “In the last four months, they’ve gone up in price more than 20%. Not only is that more than the S&P, but over the last four months that’s more than bitcoin itself.” And according to The Goldman Sachs Group, Inc. (GS), car prices will keep climbing into 2022 as the chip shortage lingers. And a Technavio report said the used car market in the United States is expected to increase by 3.91 million units from 2020 to 2025.
Given this backdrop, we think it could be wise to scoop up the shares of fundamentally sound used car retail stocks AutoNation, Inc. (AN), Group 1 Automotive, Inc. (GPI), and Sonic Automotive, Inc. (SAH).
AutoNation, Inc. (AN)
Automotive retailer AN operates through three segments: Domestic; Import; and Premium Luxury. Being America’s largest retailer, the company owns and operates over 300 locations from coast to coast. AN is based in Fort Lauderdale, Fla.
On Nov.16, 2021, AN opened AutoNation USA Phoenix Avondale, its second used vehicle store in the Phoenix market, and its fourth new AutoNation USA store to open in 2021. Steve Kwak, AN USA President, said, “The opening of our ninth AutoNation USA store and our plan to have 130 stores open by the end of 2026 underscores our nationwide commitment to the pre-owned vehicle market.”
AN’s used vehicle revenue increased 53.2% year-over-year to $2.32 billion for its fiscal third quarter, ended Sept. 30, 2021. The company’s gross profit came in at $1.27 billion, up 30.9% year-over-year. Also, its EPS was $5.12, up 149.8% year-over-year.
Analysts expect AN’s revenue to increase 26.4% year-over-year to $25.76 billion in its fiscal 2021. Its EPS is estimated to grow 145.5% year-over-year to $17.48 for the year. It surpassed the EPS estimates in each of the trailing four quarters. And over the past year, the stock has gained 60.4% in price to close yesterday’s trading session at $11.23.
AN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
AN has an A grade for Value and a B grade for Growth and Quality. Within the B-Rated Auto Dealers & Rentals industry, it is ranked #3 out of 26 stocks. Click here to see the additional POWR Ratings for Momentum, Stability, and Sentiment for AN.
Group 1 Automotive, Inc. (GPI)
Houston, Tex.-based GPI, through its subsidiaries, operates in the automotive retail industry. It operates primarily in the metropolitan areas across 15 states in the United States, 33 towns in the United Kingdom, and three states in Brazil.
On October 28, 2021, Earl J. Hesterberg, GPI’s President & CEO, said, “We continue to sell most new vehicles almost immediately upon manufacturer delivery. Assuming no material change in consumer demand, this dynamic should continue throughout the fourth quarter and into 2022. In addition to the recently announced dealership acquisition in the Dallas and Sacramento markets, we remain on track to close the purchase of the Prime Auto Group in November.”
For its fiscal third quarter, ended Sept. 30, 2021, GPI’s used vehicle retail sales increased 43.9% year-over-year to $1.25 billion. Its total revenues came in at $3.51 billion, up 15.4% year-over-year, while its net income was $172.1 million, up 36.2% year-over-year. Also, its EPS increased 36.6% year-over-year to $9.33.
GPI’s revenue is expected to be $13.70 billion in its fiscal 2021, representing a 26.2% year-over-year rise. The company’s EPS is expected to increase 90.5% year-over-year to $34.41 in fiscal 2021. In addition, it surpassed the Street’s EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 51% in price to close yesterday’s trading session at $192.91.
It is no surprise that GPI has an overall A rating, which equates to a Strong Buy in our proprietary rating system. In addition, it has an A grade for Value and a B grade for Growth and Quality. GPI is ranked #5 in the Auto Dealers & Rentals industry. Click here to see the additional POWR Ratings for GPI (Momentum, Stability, and Sentiment).
Note that GPI is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.
Sonic Automotive, Inc. (SAH)
Automotive retailer SAH operates in two segments: Franchised Dealerships and EchoPark. Currently, the Charlotte, N.C. company operates 96 new vehicle franchises and EchoPark.com, an online store for used vehicles.
On Dec. 7, 2021, SAH acquired RFJ Auto Partners, Inc. Jeff Dyke, President of SAH & EchoPark Automotive, said, “We are excited to complete the acquisition of RFJ Auto and are ready to hit the ground running as one company.”
SAH’s used vehicles revenue came in at $1.31 billion for its fiscal third quarter, ended Sept. 30, 2021, up 38.4% year-over-year. Its total vehicles revenue increased 21.5% year-over-year to $2.55 billion, while its gross profit came in at $472.02 million, up 25.3% year-over-year. Also, its EPS increased 45.5% year-over-year to $1.95.
For its fiscal 2021, SAH’s revenue and EPS are expected to increase 26.6% and 98.2%, respectively, year-over-year to $12.37 billion and $7.63. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 25.9% in price to close yesterday’s trading session at $49.88.
SAH has an overall B rating, equating to a Buy in our POWR Ratings. Moreover, it has an A grade for Value. It is ranked #8 in the Auto Dealers & Rentals industry. Click here to see the additional POWR Ratings for SAH (Growth, Momentum, Stability, Sentiment, and Quality).
Want More Great Investing Ideas?
AN shares were unchanged in premarket trading Thursday. Year-to-date, AN has declined -4.81%, versus a -1.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|AN||Get Rating||Get Rating||Get Rating|
|GPI||Get Rating||Get Rating||Get Rating|
|SAH||Get Rating||Get Rating||Get Rating|