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Asbury Automotive (ABG) Purchases Subaru Store in Colorado

Zacks Equity Research

Asbury Automotive Group, Inc. ABG acquired Mike Shaw Subaru, based in Thornton, Colorado. It is the company first dealership in Colorado and the first Subaru brand store. The purchase closed on Sep 30, 2019, for an undisclosed amount.

Additionally, Asbury Automotive signed contracts to acquire two import stores, one in the Indian polis market and another in a new market. Subject to satisfactory closing conditions, the acquisitions are scheduled to be closed in the third quarter.  The stores are anticipated to generate approximately $175 million in combined annualized revenues.

The company’s industry-leading execution and solid capital deployment strategy place it well for continuous earnings growth. Notably, Asbury Automotive displays an excellent earnings surprise record, surpassing estimates in each of the trailing four quarters. In the last reported quarter, its net income rose 27% year over year to $54.9 million.

The company’s omni-channel and digital marketing approaches to improve customer experience are yielding remarkable results. Asbury Automotive’s commitment toward efficient digital capabilities, launching online sales tools and improving online financial capabilities bode well. Its sales tool, PUSHSTART, which enables customers to complete online transactions, is aiding top-line growth. Markedly, in the last reported quarter, PUSHSTART’s online sales witnessed 29% year-over-year growth.

The company is also benefitting from operational efficiency, as is evident from declining selling, general and administrative (SG&A) costs in the past few quarters. It now expects annual SG&A costs, as a percentage of gross profit, to be 68-69% compared with 69-70% mentioned earlier.

Nonetheless, challenging market conditions and declining demand for new vehicles are weighing on new-vehicle margins. However, the profit level for used vehicles is rising, given attractive market opportunities in the face of contracting new-vehicle unit volume.

We believe that the company’s continued efforts to enhance online capabilities along with its focus toward used retail segment are likely to drive earnings.

Other Stocks to Consider

The company currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the Auto-Tires-Trucks sector are BRP Inc DOOO, currently sporting a Zacks Rank #1 (Strong Buy), and Lithia Motors LAD and Standard Motor Products, Inc SMP, carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

BRP has an expected earnings growth rate of 18.2% for 2019. The company’s shares have gained 54.5% year to date.

Lithia Motors has an expected earnings growth rate of 12.9% for 2019. The company’s shares have gained 67.8% year to date.

Standard Motor has an estimated earnings growth rate of 21.9% for 2019. Its shares have declined 0.7% year to date.

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