Declining inflation and inflating auto sales underscore the prospects of the U.S. auto dealership industry. Therefore, top Wall Street auto stocks like Asbury Automotive Group, Inc. (ABG), Group 1 Automotive, Inc. (GPI), and Sonic Automotive, Inc. (SAH) could be sound watchlist additions now.
Inflation, which has pained consumers for quite some time, is slowly losing its grip over the U.S. economy. New and used car prices are coming down. For July, consumer prices for new autos were down 0.1% compared to June, while used car prices were down 1.3%. This might translate to greater auto demand.
According to preliminary estimates from GlobalData, U.S. light vehicle sales grew 14.7% year-over-year in July to 1.30 million units due to improved inventory levels and a resilient economy. This increase also marked the 12th consecutive month of year-over-year volume increases.
On top of it, as per Mordor Intelligence, the U.S. automotive dealership market is expected to reach $257.30 billion in 2028, registering a CAGR of above 4% over the next five years.
To understand better, let’s dive deep into the fundamentals of the stocks mentioned above.
Asbury Automotive Group, Inc. (ABG)
ABG is an automotive retailer offering new and used vehicles, repair and maintenance services, as well as finance and insurance products. They also provide aftermarket services like extended contracts and prepaid maintenance.
In May, ABG announced that its board of directors had approved a new authorization to repurchase up to $250 million shares of its common stock. This reflects on the company’s strong cash flow and balance sheet.
For the fiscal second quarter that ended June 30, 2023, ABG’s total revenue amounted to $3.74 billion, while its new vehicle revenue increased 4% year-over-year to $1.94 billion. Its gross profit stood at $713.10 million. The company’s EPS came in at $9.34, representing an increase of 3% from the prior-year quarter.
For fiscal 2024, ABG’s revenue is expected to increase 8.7% year-over-year to $16.03 billion. Its consensus EPS estimate for the same period is $31.27. Additionally, it topped the consensus EPS estimates in each of the trailing four quarters, respectively.
The stock has gained 22.2% year-to-date to close the last trading session at $219.06.
ABG’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ABG also has an A grade for Value. It is ranked #9 out of 21 stocks in the B-rated Auto Dealers & Rentals industry. Click here to see the other ratings of ABG for Growth, Quality, Momentum, Stability, and Sentiment.
Group 1 Automotive, Inc. (GPI)
GPI operates in the automotive retail sector in the United States and the United Kingdom. The company sells new and used vehicles, parts, and insurance contracts while providing financing and automotive maintenance services.
On August 2, GPI announced an increase in its common stock repurchase authorization by $153.7 million to $250 million. The company also declared a quarterly dividend of $0.45 dividend per share, payable to shareholders on September 15, 2023.
The company’s President and Chief Executive Officer, Daryl Kenningham, stated, "Once again our strong cash flow and balance sheet enable the Company to deploy capital and reward stockholders. Continuing to grow our business while also returning capital to our stockholders remain our top capital allocation priorities."
Earlier in June, GPI announced the acquisition of Beck & Masten Kia, a dealership in the Houston metropolitan area. This is expected to expand the company's footprint to 15 brands and 18 dealerships in the Houston market. The dealership is expected to generate $85 million in annual revenues, bringing year-to-date total acquired revenues for GPI to $1 billion.
For the fiscal second quarter that ended June 30, 2023, GPI’s total revenues increased 10% year-over-year to $4.56 billion, while its gross profit increased marginally year-over-year to $775.50 million. Its income from operations stood at $270.80 million.
Also, its earnings per share came in at $12.04, representing an increment of 1.2% year-over-year.
Street expects GPI’s revenue to increase 6% year-over-year in the current quarter (ending September 2023) to $4.41 billion. For the fiscal year 2023, its revenue is projected to reach $17.45 billion, registering an increase of 7.6% from the prior year.
GPI’s shares have gained 42.4% year-to-date, closing the last trading session at $256.92.
GPI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
GPI also has an A grade for Value. It is ranked #5 out of 21 stocks in the Auto Dealers & Rentals industry. Click here to see the other ratings of GPI for Growth, Quality, Momentum, Stability, and Sentiment.
Sonic Automotive, Inc. (SAH)
SAH is an automotive retailer operating through three segments: Franchised Dealerships, selling new and used vehicles, offering maintenance and warranties; EchoPark, specializing in used vehicles with financing; and Powersports, selling motorcycles, watercraft, and ATVs with financial services.
On June 22, SAH announced plans to adapt the EchoPark brand to current pre-owned market conditions. Under this, SAH announced the temporary closing of eight EchoPark locations and related centers, reallocating vehicles to key markets. These changes aim to improve short-term financial performance while upholding the brand's quality and future expansion.
For the fiscal second quarter that ended on June 30, 2023, SAH’s total revenues went up 4% year-over-year to $3.65 billion, while its gross profit stood at $568.90 million. Adjusted net income and adjusted EBITDA came in at $66 million and $159.40 million, respectively.
The consensus revenue estimate of $14.66 billion for fiscal 2024 represents a 2.4% increase year-over-year. The consensus EPS estimate of $6.82 for the same year indicates a 1.7% improvement year-over-year.
Over the past three months, the stock has gained 25% to close the last trading session at $51.06.
SAH’s sound prospects are reflected in its POWR Ratings. It has a B grade for Value. Out of 21 stocks in the same industry, it is ranked #10.
In addition to the POWR Ratings we’ve stated above, we also have SAH’s ratings for Growth, Quality, Sentiment, Momentum, and Stability. Get all SAH ratings here.
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ABG shares were trading at $218.68 per share on Wednesday afternoon, down $0.38 (-0.17%). Year-to-date, ABG has gained 22.00%, versus a 16.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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