What Makes Penske Automotive (PAG) an Attractive Pick?
Penske Automotive Group, Inc. PAG is one of the noted auto retailers in the United States. The company is riding high on a spree of acquisitions, enhanced digitization, low leverage and investor-friendly moves.
The Zacks Consensus Estimate for Penske’s 2023 revenues is pegged at $29.06 billion, implying a rise of 4.5% from the year-ago reported number.
Let us discuss the factors that highlight why Penske is an attractive pick.
Growth Indicators
Penske is enjoying a good run on its strategic acquisitions. It has become the largest dealership group for Freightliner in North America with the Warner Truck Centers buyout. This aided the company to diversify its business, expanding its customer base and capitalizing on the Retail Commercial Trucks segment.
The buyouts of Kansas City Freightliner, McCoy, Team Trucks Centers and Transolutions Truck Centers are boosting Penske’s top line. Last year, the company completed acquisitions and opened new dealerships worth more than $1.3 billion in annualized revenues.
Penske’s long-term debt-to-capitalization of 26% compares favorably with the industry’s 32%. In addition to the low leverage and lack of debt maturities anytime soon, Penske’s times interest earned ratio is also favorable when compared with the industry. The company’s times interest earned ratio of 10.5 is higher than the industry’s 7.7, signifying low default risk.
Penske’s investor-friendly moves also boost confidence. In 2022, it returned $1 billion to shareholders through dividends and buybacks and hiked its quarterly dividend four times. In the first half of 2023, Penske returned $437 million to shareholders.
From the beginning of the year to Jun 30, it repurchased 2.6 million shares for $350 million. In January, May and July 2023, Penske hiked its payout by 7%, 8% and 9%, respectively. PAG’s return on equity of 29% compares favorably with the auto sector’s ROE of 12%, thus signaling management's efficiency in rewarding shareholders.
The Penske Transportation Solutions (PTS) joint venture has also been boosting the prospects of Penske Automotive — which holds 28.9% in PTS. Its stake in PTS provides the company with equity income, cash dividends and cash tax savings.
In the last reported quarter, PTS generated $2.7 billion in revenues, up 6% year over year. The acquisition of Black Horse Carriers is driving PTS revenues. Currently, PTS operates a fleet of more than 431,000 vehicles and aims to increase its fleet to 500,000 by 2025.
The expansion of digital capabilities has been aiding the firm. Digital tools available on www.carshop.com provide a comprehensive and seamless online shopping experience to customers as well as streamline processes. Digital sales are also churning robust revenues for the firm. Moreover, the firm’s sustainability initiatives augur well for long-term growth.
Favorable Style Score & Zacks Rank
PAG carries an impressive Value Score of A. Value Score helps find stocks that are undervalued. PAG currently carries a Zacks Rank #2 (Buy). Back-tested results have shown that stocks with a favorable Value Score in combination with a solid Zacks Rank, are the best investment bets.
Other Key Picks
Some other top-ranked players in the auto space include Oshkosh Corporation OSK, Toyota Motor Corporation TM and General Motors Company GM, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for OSK’s 2023 sales and earnings implies year-over-year growth of 13.5% and 120.2%, respectively. The EPS estimate for 2023 has moved north by $1.52 in the past 30 days. The 2024 EPS estimate has moved up by $1.43 in the past 30 days.
The Zacks Consensus Estimate for TM’s 2023 sales and earnings implies year-over-year growth of 10.6% and 27.5%, respectively. The EPS estimate for 2023 has increased by 97 cents in the past 30 days. The 2024 EPS estimate has moved up by $1.64 in the past 30 days.
The Zacks Consensus Estimate for GM’s 2023 sales and earnings implies year-over-year growth of 8.9% and 0.1%, respectively. The EPS estimate for 2023 has moved up by 12 cents in the past seven days. The 2024 EPS estimate has moved north by 15 cents in the past seven days.
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Oshkosh Corporation (OSK) : Free Stock Analysis Report
