Penske Automotive Gains From New Dealership, Rising Sales

On May 30, 2016, we issued an updated research report on Penske Automotive Group, Inc. (NYSE:PAG) . The company continues to gain from increasing dealerships, rising sales of new vehicles and capital deployment. However, the large merchandise inventory and intensifying competition pose concerns.

Penske Automotive’s first-quarter 2016 earnings per share improved 7.1% to 90 cents from 84 cents earned a year ago. Moreover, earnings beat the Zacks Consensus Estimate of 87 cents.

Revenues grew 7.6% year over year to $4.82 billion, surpassing the Zacks Consensus Estimate of $4.77 billion. Excluding foreign exchange, total revenue increased 10%, driven by a 9.9% rise in total retail automotive sales to 111,494 units.

Penske Automotive aims to boost earnings by expanding its dealership network. In Apr 2016, its subsidiary, Premier Truck Group acquired Harper Truck Centres, a Freightliner, Western Star, Thomas Built Bus and Fuso commercial truck dealership that operates in Ontario, Canada. Penske Automotive expects that this acquisition will add annual revenues of $130 million and complement its partnership with the Freightliner and Western Star brands. This acquisition should also provide huge market potential and bring about business opportunities in the future. In the same month, the company opened a new dealership, Porsche West Broward, in Florida. This is Penske Automotive’s eighth Porsche dealership in the U.S and sixteenth worldwide.

Additionally, Penske Automotive has been benefiting from increasing new vehicle sales over the past few years. The company expects the U.S. automotive markets to perform well in the future which will lead to good business opportunities. The U.S. auto market will benefit from rising demand, backed by an increase in the aging vehicle population, a strong credit environment for consumers, launch of new models by different automakers and low oil prices, leading to lower consumer fuel costs.

However, Penske Automotive has a large merchandise inventory. The high proportion of inventory in the current assets can affect the short-term liquidity of the company in periods of low sales. In addition, intensifying competition in the industry poses concern.

Penske Automotive currently carries a Zacks Rank #3 (Hold).

Some better-ranked automobile stocks include Autoliv, Inc. (NYSE:ALV) , Oshkosh Corporation (NYSE:OSK) and Superior Industries International, Inc. (NYSE:SUP) . All the three stocks sport a Zacks Rank #1 (Strong Buy).

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PENSKE AUTO GRP (PAG): Free Stock Analysis Report

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