On Sep 11, 2013, we upgraded automotive retailer Penske Automotive Group, Inc. (PAG) to Outperform from Neutral based on the recent acquisition of Western Star Trucks, which is expected to boost earnings. Moreover, this Zacks Rank #1 (Strong Buy) stock is witnessing rising sales of new vehicles and has a strong financial position and cash flow.
Why the Upgrade?
Penske Automotive reported positive earnings surprise in the last 4 quarters with an average beat of 5.91%. On Jul 31, 2013, the company posted a 26.8% year over year increase in earnings per share to 71 cents in the second quarter of 2013. The results also exceeded the Zacks Consensus Estimate by 6 cents.
Revenues of Penske Automotive improved 11.6% year over year to $3.7 billion, beating the Zacks Consensus Estimate of $3.6 billion. The rise in revenues was driven by a 14.1% increase in retail sales to 93,639 units, including a 12.3% increase in retail sales to 91,145 units on a same-store basis.
Since then, the Zacks Consensus Estimate for Penske Automotive’s 2013 earnings has increased 3.9% to $2.65 per share, up 16.4% over 2012. Even the Zacks Consensus Estimate for the company’s 2014 earnings per share increased 5.2% over the last 60 days to $3.01.
Penske Automotive has been benefiting from the increase in sales of new vehicles over the past few years. During the first half of 2013, unit sales rose 10.6% to 97,270 units.
Moreover, Penske Automotive has a strong financial position, good cash flow generation, and strong automotive retail environment in the U.S. and U.K. markets. Further, the company recently acquired Western Star Trucks Australia Pty Ltd., which is among the top three names in heavy duty trucks in Australia. It has affiliation with Daimler Trucks North America of Daimler AG (DDAIF). The acquisition is expected to generate annualized pro forma income of 10 cents to 14 cents per share for Penske Automotive.
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