KeyBanc Foresees Consolidation Among Auto Retailers

In a report published Tuesday, KeyBanc analyst Brett Hoselton expressed a bullish outlook on auto retailers. He said that "acquisitions should accelerate, driving upside to [the] Street's EPS."Accelerating AcquisitionsAccording to Hoselton, 2015 and 2016 will likely match the record $1.5 billion in publicly traded auto retailers that were acquired in 2014. He believes that "more large groups are considering a sale," especially since any M&A transition would likely be quick and smooth "given the public groups' access to manpower and capital." And even though valuations of auto retailers are higher than in past years, Hoselton remained confident that bigger companies are still interested in buyouts because of the large potential return on investment. Longer TermHoselton expects this trend toward consolidation to continue into the foreseeable future. One of the main factors that will push M&A long-term, according to him, is the aging dealer ownership base. He noted that many elderly owners still lack a succession plan.Hoselton also cited an increasingly complex regulatory environment and "capital intensive image requirements" as reasons that private dealers might want to make a speedy exit. Hoselton gave Overweight ratings to Asbury Automotive Group (NYSE: ABG), Carmax (NYSE: KMX), Group 1 Automotive (NYSE: GPI), Lithia Motors (NYSE: LAD), and Penske Automotive Group (NYSE: PAG). He raised GPI's price target to $98. None of the stocks have moved more than 0.5 percent today.