The U.S. returned to its pre-pandemic economic level in the second quarter, as GDP increased by 6.5%. In fact, with a strong vaccination drive, favorable government policies, and strong corporate earnings, the U.S. economy is now bigger than its pre-pandemic level.
Given this backdrop and a low-interest-rate environment, we think it could be wise to bet on mid-cap stocks. That’s because mid-cap companies tend to outperform the broader markets and industry giants during periods of economic boom, owing to higher consumer spending and bullish market sentiment. A low-interest-rate environment also increases these companies’ access to capital.
However, with surging market volatility, rising COVID-19 cases and geopolitical tensions, analysts predict big price swings in the coming period. Thus, we think relatively stable mid-cap stocks AutoNation, Inc. (AN), OneMain Holdings, Inc. (OMF), Penske Automotive Group, Inc. (PAG), and Piper Sandler Companies (PIPR), which each has an A (Strong Buy) rating in our proprietary POWR Ratings system, could be ideal bets now.
AutoNation, Inc. (AN)
AN is an automotive retailer that operates in three segments: Domestic; Import; and Premium Luxury. The Fort Lauderdale, Fla., company sells new and used vehicles and their parts and provides maintenance, repair, and insurance services. AN has an ISS Governance QualityScore of 1, indicating low governance risk. The company has a $7.61 billion market capitalization.
On July 26, AN announced its plans to raise $850 million through senior unsecured notes offering in two tranches. The cash raised is intended to be used for funding strategic initiatives and acquisitions.
In May, AN opened a retail store in San Antonio, Tex. It marked the first of five stores that it intends to open this year. This development is expected to boost its customer base and its revenues.
In its fiscal second quarter, ended June 30, AN’s revenue increased 53.9% year-over-year to $6.98 billion. The company’s adjusted operating income improved 156.3% from the prior-year quarter to $530.20 million. Its adjusted net income from continuing operations increased to $384.9 million, indicating a 210.7% year-over-year increase, while its adjusted EPS increased 242.6% from the same period last year to $4.83.
A $3.96 consensus EPS estimate for the current quarter (ending September 2021) reflects a 66.4% increase year-over-year. Likewise, the $6.52 billion consensus revenue estimate for its fiscal third quarter indicates a 20.7% increase from the prior-year quarter. Furthermore, AN has an impressive earnings surprise history; it has topped consensus EPS estimates in all four trailing quarters. The stock has gained 87.6% in price over the past year and 50.9% year-to-date.
AN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
AN has an A Value grade, and a Growth and Quality grade of B. However, in the B-rated, 25-stock Auto Dealers & Rentals industry, it is ranked #2.
In total, we have rated AN on eight different levels. Beyond what we’ve stated above, we have also rated AN for Momentum, Stability, and Sentiment. Get all the AN ratings here.
OneMain Holdings, Inc. (OMF)
OMF is a personal loan company for automobiles but accepts other collateral for unsecured loans. In addition, the company also offers life and medical insurance, unemployment insurance, and asset protection services. OMF has a $7.51 billion market capitalization.
OMF recently bought back 1.60 million shares during its secondary public offering of 8 million shares, conducted by Apollo Global Management. This concurrent share buyback is expected to boost total shareholder returns in the future.
On August 2, OMF raised $600 million in gross proceeds through an upsized senior notes offering. The company plans to repay debt and finance its general corporate expenses with the proceeds.
OMF’s net income increased 293.3% year-over-year to $350 million in its fiscal second quarter, ended June 30. Its EPS improved to $2.60, indicating a 293.9% increase from the prior-year quarter. Its non-GAAP Consumer & Insurance segment net income increased 234.6% year-over-year to $358 million, while its adjusted EPS improved 232.5% from the same period last year to $2.66.
Analysts OMF’s EPS to increase 4.6% year-over-year to $2.29 in the current quarter (ending September 2021). The Street’s $880.67 million revenue estimate for the current quarter indicates a 9.1% year-over-year rise. In addition, OMF beat the consensus EPS estimates in each of the four trailing quarters. OMF has gained 87.3% in price over the past year to close yesterday’s trading session at $56.22.
It’s no surprise that OMF has an overall A rating, which translates to Strong Buy in our POWR Rating system. The stock has a Value, Momentum, and Quality grade of B. It is ranked #2 of 51 stocks in the Consumer Financial Services industry.
Click here to see additional POWR Ratings for OMF (Growth, Stability, and Sentiment).
Penske Automotive Group, Inc. (PAG)
PAG, in Bloomfield Hills, Mich., is a transportation services company that operates primarily through four segments—Retail Automotive; Retail Commercial Truck; Other; and Non-Automotive Investments. The company sells new and used vehicles and acts as a truck dealership. It also imports heavy-duty trucks and buses to Australia and New Zealand. PAG has a $7.05 billion market capitalization. On June 4, PAG expanded to Charlotte, N.C., following its acquisition of the Mercedes-Benz dealership of South Charlotte. PAG expects to add $700 million to its annual revenue from this acquisition.
The company increased its quarterly dividend by 2.3% to $0.45 per share, which was paid on September 1. This reflects the company’s strong cash flows and management’s confidence in PAG’s operations.
In its second fiscal quarter, ended June 30, PAG’s revenue increased 91.4% year-over-year to $6.99 billion. Its gross profit rose 113.9% from the prior-year quarter to $1.18 billion. Its adjusted income from continuing operations increased 700.4% year-over-year to $360.20 million, while its adjusted EPS came in at $4.47, indicating a 698.2% rise from the same period last year.
The Street’s $3.41 EPS estimate for the current quarter (ending September 2021) reflects an 11.1% increase year-over-year. Likewise, the $6.93 billion consensus revenue estimate for the current quarter indicates a 26% increase from the prior-year quarter. Furthermore, PAG has topped consensus EPS estimates in each of the trailing four quarters. The stock has gained 81.6% in price over the past year and 47.6% year-to-date.
PAG’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. PAG also has an A Value grade, and a Sentiment B grade. It is ranked #3 of 25 stocks in the Auto Dealers & Rentals industry.
To see additional POWR Ratings for Growth, Momentum, Stability, and Quality for PAG, click here.
Piper Sandler Companies (PIPR)
PIPR is an investment banking company. Its services include investment banking, M&A advisory, and research on various equity and fixed-income products. PIPR is based in Minneapolis, Minn., and has a $2.59 billion market capitalization.
On August 24, PIPR revealed its plans to expand its equity research platform by hiring Research Analyst Charles Neivert. Regarding this move, Michael Cox, Co-Head of Global Equities at PIPR, said, “This marks an important expansion of our equity research platform, which now has more than 50 publishing senior research analysts, into a new chemicals vertical and it will allow us to leverage the investments the firm has made in the chemicals sector with the acquisition of The Valence Group in early 2020,”
In July, PIPR advised private investment firm Falcon Private Holdings, LLC on its sale of Aristech Surfaces LLC to Trinseo S.A. (TSE). The sale is expected to gain PIPR a substantial advisory income.
PIPR’s adjusted net revenue rose 68.3% year-over-year to $492.67 million in its fiscal second quarter, ended June 30. The company’s adjusted operating margin improved 10 percentage points from the same period last year to 27.7%. Its adjusted net income improved 185.8% year-over-year to $98.57 million, while adjusted EPS came in at $5.37, indicating a 178.2% increase from the prior-year quarter.
Analysts expect its EPS to increase 47.9% year-over-year to $3.52 in the current quarter (ending September 2021). The $1.75 billion consensus revenue estimate for the current year (fiscal 2021) reflects a 41.5% increase from the prior year. In addition, the company beat the Street’s EPS estimates in all four trailing quarters. The stock has gained 89.4% in price over the past year to close yesterday’s trading session at $135.47.
PIPR’s POWR Ratings reflect this promising outlook. The stock has an overall A rating. In addition, PIPR has a Growth grade of A, and a Value, Momentum, Sentiment, and Quality grade of B. In the 24-stock Investment Brokerage Industry, it is ranked #1. And this industry is rated B.
In addition to the POWR Rating grades we’ve stated above, one can see the PIPR ratings for Stability here.
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AN shares were unchanged in premarket trading Thursday. Year-to-date, AN has gained 50.87%, versus a 21.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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