The automotive industry has been recovering from its pandemic-driven lows, as evidenced by its solid sales growth in the first quarter. While the industry is currently grappling with a global semiconductor shortage, President Biden’s proposed $50 billion investment in semiconductor manufacturing and research and development, under the CHIPS for America Act, should boost the production levels significantly. There have also been private investments to address the semiconductor shortage issue.
Global automotive sales are expected to rise 8%-10% year-over-year to 83-85 million units in 2021.
Given this backdrop, Wall Street analysts expect cheap automotive stocks Penske Automotive Group, Inc. (PAG), Asbury Automotive Group Inc. (ABG), and Group 1 Automotive, Inc. (GPI) to rally in the coming months.
Click here to check out our Automotive Industry Report for 2021
Penske Automotive Group, Inc. (PAG)
PAG is a diversified transportation services company that operates automotive and commercial truck dealerships internationally. The company, which is based in Bloomfield Hills, Mich., sells new and used motor vehicles and related products, vehicle and collision repair services, finance and lease contracts, third-party insurance products, and other aftermarket products.
Last month PAG entered the Charlotte, North Carolina market area with the acquisition of Mercedes-Benz of South Charlotte. The company expects to add $150 million in annualized revenue from the new market area with growing demand. With the completion of this acquisition, PAG has added more $700 million in expected annualized revenue to its operations this year, on its way to its target goal of $1 billion in earnings before taxes in 2023.
On April 13, PAG and its commercial vehicle subsidiary Premier Truck Group (PTG) completed the acquisition of Kansas City Freightliner (KCFL), a retailer of medium- and heavy-duty commercial trucks. The acquisition will further scale PTG business by providing services to the customers of both companies and is expected to generate $450 million in annualized revenue.
For its fiscal first quarter, ended March 31, 2021, PAG’s revenue increased 15.3% year-over-year to $5.77 billion. The company’s gross profit increased 17.6% year-over-year to $913.20 million. Its operating income came in at $219.60 million, up 106.4% from its prior-year period. PAG’s net income is reported at $182.50 million for the quarter, which represents a 253% rise year-over-year. Its EPS increased 253.1% year-over-year to $2.26. As of March 31, 2021, the company had $94.6 million in cash and cash equivalents.
Analysts expect the company’s revenue to increase 10.8% for the current quarter, ending September 30, 2021, to $6.62 billion. The stock surpassed the Street’s EPS estimates in each of the trailing four quarters. PAG’s EPS is expected to grow at a 9.3% rate per annum over the next five years.
In terms of non-GAAP forward P/E, PAG is currently trading at 8.54x, which is 50.2% lower than the 17.13x industry average. In terms of forward Price/Sales, PAG is currently trading at 0.25x, 81.5% lower than the 1.34x industry average.
The stock has gained 92.8% over the past year and 56% over the past nine months. It closed yesterday’s trading session at $75.49.
All five Street analysts rating the stock have rated it ‘Buy.’ Furthermore, analysts expect the stock to hit $104.40 in the near term, which indicates a potential 38.3% upside .
PAG’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.
The stock has an A grade for Value, and a B grade for Growth, Momentum, and Sentiment. To see more of PAG’s component grades, click here. PAG is ranked #2 of 27 stocks in the B-rated Auto Dealers & Rentals industry.
Asbury Automotive Group Inc. (ABG)
ABG is an automotive retailer that operates franchises and dealership locations. The company offers new and used vehicles, finance and insurance products, vehicle maintenance and repair services, replacement parts, and service contracts. It offers dealerships for luxury and mid-line import brands. ABG is based in Duluth, Ga.
ABG’s total revenue came in at $2.19 billion for the fiscal first quarter, ended March 31, 2021, which represents a 36.4% improvement year-over-year. The company’s gross profit was $382.70 million, up 40.5% from the prior-year period. Its adjusted income from operations has been reported at $133.50 million for the quarter, which represents a 95.2% year-over-year improvement. ABG’s adjusted net income increased 161.4% year-over-year to $90.70 million. Its adjusted EPS increased 160% year-over-year to $4.68. As of March 31, 2021, ABG had $27.80 million in cash and cash equivalents.
Analysts expect ABG’s EPS to improve 3.8% year-over-year for its current quarter, ending September 30, 2021, to $4.23. The stock surpassed the Street’s EPS estimates in each of the trailing four quarters. A $2.30 billion consensus revenue estimate for the current quarter represents a 24.5% rise on a year-over-year basis. Analysts expect the stock’s EPS to grow at 18.5% per annum over the next five years.
In terms of non-GAAP forward P/E, ABG is currently trading at 10.01x, which is 41.6% lower than 17.13x industry average. In terms of forward Price/Sales, ABG is currently trading at 0.37x, which is 72.7% lower than the 1.34x industry average.
ABG has rallied 121.6% over the past year and 75.9% over the past nine months. It ended yesterday’s trading session at $171.37.
Wall Street analysts expect the stock to hit $232.50 in the near term, which indicates a potential 35.7% upside. Of the four Wall Street analysts that have rated the stock, three rated it a ‘Buy’ and one a ‘Hold.’
ABG’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has a B grade for Value, Momentum, and Quality. In addition to the POWR Ratings grades we’ve just highlighted, one can see ABG’s ratings for Stability, Growth, and Sentiment here. ABG is ranked #6 in the Auto Dealers & Rentals industry.
Group 1 Automotive, Inc. (GPI)
GPI participates in the automotive retail industry and operates in the United States, U.K. and Brazil. The Houston, Tex., company sells new and used cars, light trucks and related parts, as well as service and insurance contracts, offers automotive maintenance and repair services, and arranges related vehicle financing through its dealerships.
On March 16, 2021, GPI acquired two of Toyota Motor Corporation’s (TM) dealerships located in Massachusetts. The company expects these dealerships to generate approximately $120 million in annualized revenues.
GPI’s total revenues came in at $3.01 billion for its fiscal first quarter, ended March 31, 2021, which represents an 11.9% improvement year-over-year. The company’s gross profit increased 17.8% year-over-year to $490.70 million. GPI’s non-GAAP income from operations was reported at $153.70 million for the quarter, up 117.1% from the prior-year period. While its non-GAAP net income increased 235.6% year-over-year to $102.70 million, its non-GAAP EPS increased 235.5% year-over-year to $5.57.
The stock surpassed the consensus EPS estimates in three of the trailing four quarters. A $3.32 billion consensus revenue estimate for the current quarter, ending September 30, 2021, represents a 9.1% rise from the prior-year period.
In terms of non-GAAP forward P/E, GPI’s 7.30x is 57.4% lower than the 17.13x industry average. In terms of forward Price/Sales, GPI is currently trading at 0.21x, which is 84% lower than the 1.34x industry average.
GPI has gained 134.1% over the past year and 74.7% over the past nine months. It closed yesterday’s trading session at $154.43.
Of six Wall Street analysts that have rated the stock, five rated it a ‘Buy’ and one rated it ‘Hold.’ The $207.67 average price target indicates a potential 34.5% upside.
It’s no surprise that GPI has an overall A rating, which translates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Growth and Value, and a B grade for Momentum and Quality. Click here to see the additional POWR Ratings for GPI (Stability and Sentiment). The stock is ranked #3 in the same industry.
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.
Click here to check out our Automotive Industry Report for 2021
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PAG shares were trading at $77.97 per share on Thursday afternoon, up $2.48 (+3.29%). Year-to-date, PAG has gained 32.82%, versus a 15.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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