Penske Automotive (PAG) Down 4.4% Since Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Penske Automotive Group, Inc. PAG. Shares have lost about 4.4% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Penske Automotive (PAG) Beats Earnings Estimates in Q4

Penske Automotive’s earnings per share improved 12.3% to $0.91 from $0.81 recorded a year ago. Moreover, earnings surpassed the Zacks Consensus Estimate of $0.87.

Net income rose 16% to $82.7 million in the reported quarter from $71.3 million a year ago. Income from continuing operations increased 6.5% to $77.4 million in the reported quarter from $72.7 million a year ago.

Revenues dipped 0.7% year over year to $4.88 billion, missing the Zacks Consensus Estimate of $4.98 billion. Excluding foreign exchange, total revenue increased 5.7%, driven by a 1.8% rise in total retail automotive sales to 112,129 units.

Same-store retail revenues declined 3.8%. Same-store retail automotive revenues dipped 4.4% to $4.34 billion.

Gross profit increased 1% to $727.3 million from $717.1 million in the fourth-quarter 2015. Operating income dipped 0.7% to $125.2 million from $126.1 million a year ago.

2016 Performance

Earnings for 2016 increased 7.1% to $3.93 per share from $3.67 in 2015. The figure also beat the Zacks Consensus Estimate of $3.91.

Revenues for 2016 rose 4.3% to $20.11 billion, marginally missing the Zacks Consensus Estimate of $20.17 billion.

Segment Performance

The company operates under three reportable segments – Retail Automotive, Retail Commercial Trucks, and Commercial Vehicles Australia/Power Systems and Other.

Revenues from Retail Automotive inched down 0.4% to $4.55 billion in the reported quarter.

Revenues from Retail Commercial Trucks decreased 9.4% to $218.4 million from $241 million recorded in the year-ago quarter.

Revenues from Commercial Vehicles Australia/Power Systems and Other increased 5.8% to $118 million in the reported quarter.

Financial Position

Penske Automotive had cash and cash equivalents of $24 million as of Dec 31, 2016, down from $62.4 million as of Dec 31, 2015. Long-term debt was $1.87 billion as of Dec 31, 2016, up from $1.28 billion as of Dec 31, 2015.

Acquisition Update

In 2016, Penske Automotive acquired or opened new dealerships which will generate annual revenues of $700 million.

In Jan 2017, the company completed the CarSense acquisition that was announced in Dec 2016. The company expects this buyout to drive annual revenues by around $350 million along with earnings accretion of around $0.07 to $0.09 per share annually. Penske Automotive expects this buyout to diversify its business and expand its customer base. It will also help the company capitalize on the highly fragmented used automotive retail segment.

In Jan 2017, Penske Automotive signed a deal to acquire the leading retailer of used vehicles in the U.K. – CarShop. The company expects CarShop to generate annual revenues of around $340 million along with earnings accretion of roughly $0.07 to $0.09 per share annually. The acquisition is expected to close in the first quarter of 2017, subject to certain conditions.

Share Repurchase

In 2016, Penske Automotive acquired 4.5 million shares for $167.9 million. As of Dec 31, 2016, the company has $32.1 million remaining under its share repurchase authorization.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum. There has been one upward revision in the last two months.

Penske Automotive Group, Inc. Price and Consensus

 

Penske Automotive Group, Inc. Price and Consensus | Penske Automotive Group, Inc. Quote

VGM Scores

At this time, Penske Automotive Group's stock has an average Growth Score of 'C', however its Momentum is doing a lot better with an 'A'. Following the exact same course, the stock was allocated also a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value and momentum investors than growth investors.

Outlook

While estimates have been broadly trending downward for the stock, the magnitude of this revision looks promising. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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