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Wide Dealership Presence Aids Penske, Waning Volume Hurts


On Apr 11, we issued an updated research report on Penske Automotive Group, Inc. PAG.

The automotive and commercial truck dealership company is expanding dealership network to boost earnings. At the end of 2017, it operated 20 medium and heavy-duty truck dealerships in the United States and Canada, which sold 2,294 units and generated $308.2 million revenues. The company also acquires other existing dealerships to increase dealership-count in regions where it has a limited presence.

In order to expand international presence, in January, the company completed the acquisition of The Car People, a used-vehicle seller based in the United Kingdom. The acquisition is anticipated to generate annualized revenues of roughly $300 million. Prior to this, in February 2017, Penske Automotive bought another U.K.-based used-vehicle retailer, CarShop.

Penske Automotive Group, Inc. Price and Consensus

These acquisitions will help the company to reinforce its position in the U.K. by developing the used-car business segment, which is the second-largest market for Penske Automotive. In 2017, its U.K. market contributed 33% in total revenues compared with 32% recorded in the year-ago period.

In order to boost shareholders’ confidence, Penske Automotive engages in regular share repurchase programs and dividend payments. In almost every quarter, the company increased the quarterly dividend from preceding payouts by roughly 1 cent. In January 2018, it hiked to 34 cents from the prior payout of 33 cents for fourth-quarter 2017.

However, Penske Automotive is witnessing a gradual decline in volume growth. In fourth-quarter 2017, new and used-vehicle volume grew 7%, sequentially, compared with 10% and 13%, recorded in the second and third quarter of 2017. This might hamper its financials if the similar trend continues.

Also, competition among peers and exposure to foreign currency fluctuations might slow down company’s growth.

Price Performance

In the last six months, shares of Penske Automotive have underperformed the industry it belongs to. The stock has lost 4.7%, wider than the industry’s decline of 0.9%.

Zacks Rank & Key Picks

Penske Automotive carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the auto space are Fox Factory Holding Corp. FOXF, Cummins Inc. CMI and BorgWarner Inc. BWA, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fox Factory has an expected long-term growth rate of 10.5%. Over a year, shares of the company have surged 30.7%.

Cummins has an expected long-term growth rate of 11.4%. The stock has seen the Zacks Consensus Estimate for annual earnings being revised 0.3% upward over the last seven days.

BorgWarner has an expected long-term growth rate of 8.6%. Shares of the company have soared 40% over a year.

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