The U.S. automotive industry witnessed a 14.6% decline in new-vehicle sales in 2020 due to the worst recession the nation has suffered since the Great Depression in the 1930s. However, the rising demand for secondhand cars and electric vehicles (EVs) have driven the auto industry to outperform the broader market since the second half of last year. This is evident in…
First Trust NASDAQ Global Auto Index Fund’s (CARZ) 43.9% returns over the past nine months compared to the SPDR S&P 500 ETF Trust’s (SPY) 20.1% gains.
The auto industry’s recovery is expected to accelerate in tandem with the global economic recovery. The global motor vehicle and parts dealers’ market is expected to grow at a 7% CAGR over the next five years to reach $5.68 trillion by 2025.
Given this growth potential, we think it could be wise to invest in the stock of auto dealers Penske Automotive Group, Inc. (PAG – Get Rating), Group 1 Automotive, Inc. (GPI – Get Rating), and Sonic Automotive, Inc. (SAH – Get Rating), which have immense upside potential but are trading at discounts to their peers.
Click here to check out our Automotive Industry Report for 2021
Penske Automotive Group, Inc. (PAG – Get Rating)
PAG is a diversified transportation services company that operates automotive and commercial truck dealerships internationally. The company sells new and used motor vehicles and related products, vehicle and collision repair services, and the placement of finance and lease contracts, third-party insurance products, and other aftermarket products.
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 its business within Premier Truck Group by providing services to the customers of both companies and is expected to generate $450 million in annualized revenue.
In March, PAG adopted CarShop, a U.K.-based dealer of used automotive vehicles, as its global brand for its used vehicle SuperCenters. Both companies will adopt one global CarShop brand, and they hope to operate in 40 locations, grow annual sales to 150,000, and increase revenue to $2.50 – $3 billion by 2023.
For its fiscal year 2021 first quarter, ended March 31, the company’s revenue increased 15.3% year-over-year to $5.77 billion. Its 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. Its net income is reported $182.50 million for the quarter, which represents a 253.7% rise year-over-year. Its EPS increased 253.1% year-over-year to $2.26.
Analysts expect PAG’s EPS to improve 248.2% year-over-year to $1.95 for the current quarter, ending June 30 It surpassed the Street’s EPS estimates in each of the trailing four quarters. And its $5.83 billion consensus revenue estimate for the current quarter represents a 59.7% rise on a year-over-year basis. The stock’s EPS is expected to grow at a rate of 5.6% per annum over the next five years. The stock has gained 159.2% over the past year and closed yesterday’s trading session at $86.61.
It’s no surprise that PAG has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock also has an A grade for Growth and Value, and a B grade for Momentum and Sentiment. Click here to see the additional POWR Ratings for PAG (Stability and Quality).
PAG is ranked #1 of 25 stocks in the B-rated Auto Dealers & Rentals industry.
Group 1 Automotive, Inc. (GPI – Get Rating)
GPI participates in the automotive retail industry and operates in the United States, U.K. and Brazil. The 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.
In March, GPI acquired two Toyota dealerships located in Massachusetts. The dealerships are expected to generate approximately $120 million in annualized revenues.
GPI’s total revenues came in at…
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