Given macroeconomic headwinds, U.S. motor vehicle production and sales could falter in the near term. However, according to Statista, the United States will stay North America's largest vehicle sales market, despite an apparent slowdown.
U.S. motor vehicle production is projected to reach 11.70 million units by 2025, while U.S. light vehicle sales could hit 17.70 million units for the same period. Moreover, the demand for used cars is overwhelming. According to a recent study from CoPilot, consumers are paying $10,000 more to buy a used car than what they would have paid if the economy were normal.
The insights team at Cox Automotive believes that new-vehicle demand is healthy and sales volume could increase with a sufficient supply.
So, fundamentally sound auto stocks Penske Automotive Group, Inc. (PAG), AutoNation, Inc. (AN), and Group 1 Automotive, Inc. (GPI) could be ideal investments now.
Penske Automotive Group, Inc. (PAG)
A diversified transportation services company, PAG operates automotive and commercial truck dealerships. The company operates through four segments: Retail Automotive; Retail Commercial Truck; Other; and Non-Automotive Investments.
On May 3, 2022, PAG acquired Terry Lee Hyundai and Genesis of Noblesville, Indiana, expanding its presence in the Indianapolis metropolitan market. Also, on April 12, 2022, PAG acquired BMW/MINI of Escondido and a collision center in California. These acquisitions are expected to expand PAG’s revenues in the near term.
For the first quarter that ended March 31, 2022, PAG’s revenue increased 20.8% year-over-year to $6.98 billion. Its net income came in at $367.90 million, up 101.6% year-over-year, while its EPS came in at $4.76, up 110.6% year-over-year.
PAG’s revenue is expected to increase 9.2% year-over-year to $27.90 billion in 2022. Its EPS is estimated to increase 20.7% per annum for the next five years. Moreover, it surpassed EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 34.3% to close the last trading session at $110.06.
PAG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
PAG has a B grade for Growth, Value, Sentiment, and Quality. It is ranked #3 out of 24 stocks in the B-rated Auto Dealers & Rentals industry. Click here for the additional POWR Ratings for Momentum and Stability for PAG.
AutoNation, Inc. (AN)
AN and its subsidiaries operate as automotive retailers in the United States. The company operates through three segments: Domestic; Import; and Premium Luxury. It owns and operates 339 new vehicle franchises from 247 stores located primarily in metropolitan markets in the Sunbelt region.
On May 3, 2022, AN announced that its 129 stores got certified in the J.D. Power 2022 Dealer of Excellence Program for exceptional customer service. Marc Cannon, Executive Vice President and Chief Customer Experience Officer said, “This certification sets us apart, especially coming from such an authority as J.D. Power.”
AN’s operating income increased 5.3% year-over-year to $558.10 million for the second quarter that ended June 30, 2022. Its EPS came in at $6.48, up 34.2% year-over-year. In addition, its gross profit came in at $1.36 billion, up 2.7% year-over-year.
AN’s revenue is expected to increase 7.7% year-over-year to $27.84 billion in 2022. Its EPS is estimated to increase 30.4% year-over-year to $23.66 in 2022. Also, it surpassed EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 11.5% to close the last trading session at $117.07.
AN's overall B rating equates to a Buy in our proprietary rating system. It has an A grade for Value and a B grade for Quality.
Within the same industry, AN is ranked #5. Click here for the additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for AN.
Group 1 Automotive, Inc. (GPI)
GPI and its subsidiaries operate in the automotive retail industry. The company owns and operates 204 automotive dealerships, 273 franchises, and 47 collision centers that offer 35 brands of automobiles.
On July 11, 2022, GPI acquired three dealerships and a collision center in Shreveport, Louisiana. The dealerships were acquired from Holmes European Motors, L.L.C., and include Mercedes-Benz, Sprinter, Land Rover, Jaguar, and Volvo franchises. The dealerships are expected to generate $110 million in annual revenues.
GPI’s total revenues came in at $3.84 billion for its first quarter that ended March 31, 2022, up 30.1% year-over-year. Its net income came in at $202.90 million, up 99.1% year-over-year. Moreover, its EPS came in at $11.88, up 115.2% year-over-year.
For 2022, analysts expect GPI’s revenue to increase 19.3% year-over-year to $16.09 billion. Its EPS is estimated to grow 22.2% to $42.78 in 2022. It surpassed EPS estimates in each of the four trailing quarters. Over the past year, the stock has gained 2.8% to close the last trading session at $174.34.
GPI has an overall A rating, equating to a Strong Buy in our proprietary rating system. It has an A grade for Value and a B for Growth and Quality.
Within the Auto Dealers & Rentals industry, it is ranked #4. Click here for the additional POWR Ratings for Momentum, Stability, and Sentiment for GPI.
PAG shares were trading at $110.41 per share on Monday afternoon, up $0.35 (+0.32%). Year-to-date, PAG has gained 3.93%, versus a -16.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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