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Group 1 Automotive Rides on Earnings & Pricing Strategies

Zacks Equity Research

On Aug 9, we issued an updated research report on Group 1 Automotive, Inc. GPI.

The leading automotive retailer sells new and used vehicles as well as offers vehicle financing, insurance and service contracts. The company operates through three reportable segments — the United States, the U.K. and Brazil.

Strong performance in the United States is driving the company’s earnings. Apart from strong sales of used retail units, the aftersales unit’s rising customer pay up and wholesale parts as well as collision generated revenues. Numerous implementations of pricing strategies and Val-U-Line initiative in the United States drove used vehicles’ gross profit. The company's U.S. operations contributed 75.8% to total revenues and 82.9% to total gross profit.

Group 1 Automotive regularly makes acquisitions and divestments to develop its business and expand footprint. In July, the company acquired five new U.K. franchises which are expected to generate approximately $115 million annual revenues. After U.K. expansion, the company plans to fortify presence in the United States. In July, the company acquired two BMW and two MINI franchises in New Mexico, which are expected to generate approximately $100 million in annualized revenues. For the short term, it aims to acquire attractive businesses in the U.S. markets that will provide growth opportunities and divest unprofitable ones. In June, the company disposed four franchises, which generated approximately $80 million revenues in the trailing 12 months.

With rising prices of new vehicles, the company is likely to witness further growth in the demand for used vehicles in the upcoming quarters of 2019. Further, the company’s capital deployment strategies are expected to boost shareholders’ value.

However, currency fluctuation that has weakened the British pound will likely affect the company’s results. High expenses stemming from rent and facility costs, advertising as well as employee salaries add to the headwinds.

In the past six months, Group 1 Automotive has outperformed the industry it belongs to. During the same time frame, the company’s shares have rallied 36.5% compared with the industry’s rise of 21%.

Zacks Rank & Other Stocks to Consider

Currently, Group 1 Automotive sports a Zacks Rank #1 (Strong Buy).

Some other top-ranked stocks in the auto space are Fox Factory Holding Corp FOXF, CarMax, Inc KMX and Gentex Corporation GNTX, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fox Factory has an expected long-term growth rate of 16.7%. In the past six months, shares of the company have rallied 22.9%.

CarMax has an expected long-term growth rate of 12.6%. In the past six months, shares of the company have surged 36.9%.

Gentex has an expected long-term growth rate of 5%. In the past six months, shares of the company have returned 36.8%.

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