Penske Gains from Dealership Expansion & New Vehicle Sales

On Aug 12, we issued an updated research report on Penske Automotive Group, Inc. PAG. The company is poised to benefit from increasing dealerships, rising sales of new vehicles and capital deployment. However, the large merchandise inventory and intensifying competition in the industry pose concerns. Further, Penske Automotive's business is exposed to fluctuations in foreign exchange rates.

Penske Automotive's earnings per share improved 6.7% to $1.11 from $1.04 recorded a year ago. Moreover, earnings per share surpassed the Zacks Consensus Estimate of $1.08.

Revenues grew 6.8% year over year to $5.3 billion, surpassing the Zacks Consensus Estimate of $5.1 billion. Excluding foreign exchange, total revenue increased 9.2%, driven by a 6.2% rise in total retail automotive sales to 115,106 units.

Penske Automotive aims to drive earnings by expanding its dealership network. In Jul, 2016, the company acquired an additional 14.4% interest in Penske Truck Leasing Co., L.P. ("PTL"). It expects the buyout to boost earnings per share by 25 cents annually and lead to additional cash flow. The acquisition will also result in significant cash tax savings.

Penske Automotive is also focusing on capital deployment to enhance shareholder value. In Jul 2016, the company announced an increase in its quarterly cash dividend to $0.28 per share from the prior payout of $0.27. In the first half of 2016, Penske Automotive repurchased 4,657,042 shares for a total of $173.6 million. As of Jun 30, 2016, it had $32.1 million remaining under its current share repurchase authorization.

Penske Automotive is also benefiting from rising new vehicle sales over the past few years. The company expects the U.S. automotive markets to perform well in the future. This will improve business opportunities for Penske Automotive.

However, Penske Automotive has a large merchandise inventory. The high proportion of inventory in the current assets can affect the short-term liquidity of the company in low-sales periods.

In addition, Penske Automotive competes with other franchised automotive dealerships, private market buyers and sellers of used vehicles, Internet-based vehicle brokers, national and local service, repair shops and parts retailers, and automotive manufacturers. The main competitors of the company include AutoNation, Inc. AN, Lithia Motors Inc. LAD and Group 1 Automotive Inc. GPI.

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PENSKE AUTO GRP PAG: Free Stock Analysis Report
 
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GROUP 1 AUTO GPI: Free Stock Analysis Report
 
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