Penske Automotive: The story that started on the race track
The dividend-paying car sales company, which surged 8.8% after its recent quarterly results, is still trading well below its fair value. Will it continue to do well in the quarters ahead, supporting its stock on its way to new highs?
The company operates more than 300 dealerships worldwide, offering a wide range of new and used vehicles from a variety of brands, including luxury and premium brands such as Audi, BMW, Mercedes-Benz, Porsche and Ferrari. In addition to vehicle sales, Penske Automotive also provides vehicle maintenance and repair services, auto financing and insurance, as well as parts and accessories.
Outside of the automotive industry, Penske Automotive Group also owns and operates truck stops and distribution centers, expanding its reach into the transportation and logistics sector. Penske Automotive Group is dedicated to providing excellent customer service and maintaining strong relationships with automotive manufacturers. The company is constantly expanding and upgrading its services to keep pace with the rapidly changing automotive industry and customer needs.
Interesting factA: An interesting fact about Penske Automotive Group is its close association with motorsports. The company's founder, Roger Penske, is a well-known former race car driver and owner of one of the most successful teams in the history of auto racing, Team Penske. This team has participated in various motorsports competitions, including IndyCar and NASCAR races, and has achieved many victories and titles.
Managment
Roger S. Penske - CEO
Roger graduated from Lehigh University in Pennsylvania with a degree in Business Administration. While in college, he became interested in motorsports, which led him to participate in sports car racing in the 1950s and 1960s. His driving skills made him one of the most respected American racers of the time, and in 1961 he was named Sports Illustrated magazine's Racer of the Year.
Although he was a successful racer, he retired from an active racing career in 1965 to devote himself fully to his business. He founded Penske Corporation, which became the parent company for several automotive businesses, including Penske Automotive Group and Penske Truck Leasing. Today, Penske Automotive Group is one of the largest automotive retailers in the world.
Roger is also known as the founder and owner of Team Penske, which participates in various motorsports competitions, including IndyCar and NASCAR racing. Team Penske is one of the most successful racing teams in the world, with many victories including several triumphs at the legendary Indianapolis 500.
He is married to Kathy Penske and has five children. Some are involved in the family business, most notably Gregory Penske, who is with the Penske Motor Group.
Industry/Specialty of the company
Automotive retail sales: Penske Automotive Group is one of the largest automotive retail groups in the world. The company operates more than 300 dealerships that offer a wide range of new and used vehicles, including luxury and premium brands such as Audi, BMW, Mercedes-Benz, Porsche, and Ferrari.
Truck leasing and rentalA: The Penske Truck Leasing industry is a leader in commercial vehicle rental and leasing. The company provides rental, fleet management, and vehicle maintenance services for businesses of all sizes. It is known for its extensive fleet of trucks and commercial vehicles offered throughout the United States and Canada.
Motorsports: Team Penske is one of the most successful racing teams in the world. The team participates in a variety of motorsports competitions, including IndyCar, NASCAR, and SportsCar, and has many victories to its credit, including several triumphs at the prestigious Indianapolis 500. Team Penske is known for its emphasis on performance and technological innovation, which the CEO himself is involved in.
Logistics and Transportation: Penske Logistics provides complete logistics solutions including supply chain management, distribution and transportation services. The company helps optimize logistics processes for a wide range of industries, including automotive, food and consumer goods.
Technology Innovation: $PAG focuses on using modern technology to improve customer experience and efficiency of operations. This includes implementing digital platforms for vehicle sales and service, as well as investing in new automotive technologies such as electric vehicles and autonomous driving.
Company profitability and cash
Shares of $PAG+2.2% have reached an all-time high in the past three weeks thanks to very strong quarterly results. However, it was not enough to beat it by 0.6%. Even after falling a few percent from that top, the stock is still just a hair off its 2023 peak.
The company's market capitalization is $11.09 billion. This is one of the highest values ever achieved. The company is now only less than 8% below the top. There are now 28,000 employees working for the company worldwide. Its debt is currently $8.39 billion.
In terms of stock splits, 72.25% is still privately held by the founder's family. This shareholding consists of a total of 48.24 million shares. The remaining 18.53 million shares on the market are owned by investors. Management now has cash on hand of $115 million.
In 2019, the firm's $PAG+2.2%revenue was $23.18 billion. Operating margins then were 1.88%. From that stemmed a net profit of $435.8 million. However, in 2020, revenues declined. The Covid pandemic boosted online sales, but dealerships were closed. Revenue was $20.44 billion and margins rose to 2.66%. Profit was therefore $543.6 million. But for the last 3 years, revenue has only been growing. In 2021, they got to $25.55 billion. Operating margins were 4.65% that year and net profit climbed to $1.19 billion. The year 2022 brought a record net profit of $1.38 billion. This was due to margins that were 4.96% and revenue that climbed to $27.81 billion. Last year, revenue moved to $29.53 billion, but margins fell to 3.57%. Net income was $1.05 billion.
The company's core business continues to grow, and it earns the most in the United States. 58.21% of the company's total revenue comes from this country. The company earned the remaining $12.34 billion in revenue from all other countries, which is dominated by countries from Europe.
Automobile sales account for 85.38%of $PAG'+2.2%s business . And that's whether used or brand new. The company was able to extract $25.21 billion in revenue from this segment of its business last year. Truck rentals came in second with $3.68 billion in sales. Other interests earned the company $634 million.
Earnings per share were at $4.31 in 2017. This was right in line with what the market expectedfrom $PAG+2.2%. But the consensus did not meet reality the following year. EPS lagged by 1.02%. But the next four years the company did well. In 2020, earnings per share were $6.64. But the main growth came in 2021, when EPS hit $15.28. In 2022, it added $3.27 to that value, bringing earnings per share to their highest level. Last year, their value dropped to $16.1. It was the first time since 2018 that the company failed to beat market estimates. In the coming years, including this year, EPS should fall to between $13 and $14, where current outlook calls for it to stay until 2027.
It's a bit of a different story for earnings, though. Revenue in 2017 was $21.39 billion. That was 0.68% above the market consensus. In the next two years, the value grew and got up to $23.18 billion in 2019. In the following year, thanks to the pandemic and the closure of part of the company's business, revenue dropped to $20.44 billion. But in the last three years, the value of sales has only been rising. Revenue was $25.55 billion in 2021 and $27.81 billion in 2022. Last year, revenues hit their highest ever value of $29.53 billion. Growth is projected to continue in the coming years. The company has been successful in expanding its business in recent years and consistently beating analysts' estimates. By 2026, its annual sales could reach $31.96 billion.
Revenue from the company's largest business division, car sales, has grown from $19.82 billion in 2017 to $25.21 billion last year. But the truck rental business saw an even bigger percentage increase. That segment went from $1.05 billion to $3.68 billion over the same time period. Revenues from the company's other businesses moved from $514.6 million in 2017 to $634 million in 2023. The company's business is expected to continue to grow in the coming years.
Operating expenses
The company spent around $2.5 billion in one quarter in 2010. However, this figure has only increased since then as the company has done well in its business. As its sales grew, it could afford to invest more and more. By 2013, the value of one quarter's spending had reached $3.6 billion. The growth continued until 2019, when one quarter cost the company $5.7 billion. By early 2020, costs had fallen to $3.5 billion due to reduced operations. Since then, however, their value has only increased. Last quarter, the company spent the most in its history. It was $7.35 billion.
Dividend
The company first shared its profits with its stockholders in 2003. The first dividend was at the rate of 5 cents per share. After the new year, the dividend was paid every quarter and the value of the dividend increased gradually. In mid-2006, the shares were split 2/1. The new payout was 7 cents per share held. The dividend was suspended from November 2008 to May 2011. It was reinstated at $0.07.
Thereafter, the suspension occurred once more. This was relatively recently, when shareholders did not receive a payout from February to November 2020. However, there has been no interruption since then and hopefully there should not be any in the foreseeable future. The current dividend amount is $1.07. Thus,$PAG+2.2%'s annual dividend yield is 2.24%.
Valuation/Comparison to peers
The P/E ratio for $PAG+2.2% won't stay flat for long. Between 2010 and 2018, it moved very quickly between 13.6 and 6.8 points. Within this range, the ratio has fluctuated despite the company doing relatively well. Slowly but surely, its earnings per share grew as did its stock price on the stock market. At the bottom in 2018, the 5 point P/E started to turn around. By 2021, it was up to 9 points. In the following 12 months, it dropped back down to 5, but it has only been rising since. The stock is now at all-time highs and it looks like its valuation might be settling down. The current P/E is 12 points.
Rivals
Sonic Automotive $SAH+3.3%: The company focuses on selling new and used vehicles, providing financing and insurance services, and also offers vehicle service, parts and repair. Sonic Automotive owns and operates more than 100 dealerships. The company also focuses on digital innovation in car sales through its EchoPark Automotive platform, which was launched in 2014. EchoPark specializes in selling high-quality used vehicles with the aim of offering customers a transparent and simple buying process. This digital division contributes to the company's growth and expands its presence in the used vehicle market.
Asbury Automotive Group $ABG+2.1%: Founded in 1995, this company is headquartered in Georgia. Asbury specializes in selling new and used vehicles, providing financing and insurance services, and also offers service, repair, and parts. Asbury Automotive is focused on growing and improving customer service through strategic acquisitions and technological innovation. In 2021, the company significantly expanded its market footprint with the acquisition of Larry H. Miller Dealerships, one of the largest acquisitions in the history of the automotive retail industry.
Lithia Motors $LAD+5.4%: The company specializes in the sale of new and used vehicles, the provision of financing and insurance services, and service, repair and replacement parts. The company operates hundreds of dealerships across the U.S. and Canada. One of the key aspects of Lithia Motors' growth has been its proactive acquisition strategy, which has allowed it to expand into new regions and increase its market share. The company is also investing heavily in digital technology, particularly through its Driveway platform, which launched in 2020. Driveway allows customers to conduct the entire vehicle buying and selling process online, including financing, insurance and home delivery.
$PAG+2.2% - blue, $SAH+3.3%, green, $ABG+2.1% - black, $LAD+5.4% - orange
As you can see beautifully by comparing the performance of each company's stock over the last 4 years and 8 months, after the covid plunge, their price has gone much higher. If you have read the previous texts carefully for each company, you might have noticed that they have all moved online in some way using their platforms. They were spurred to do so by the pandemic and the closure of their physical offices. This transformation has then been behind their growth. The company that has done it the most is $PAG+2.2%, whose stock is up 251% since 2020. In second place, with an appreciation of 138%, is $ABG+2.1%. Third and fourth place then goes to $LAD+5.4% and $SAH+3.3%, which are up 111% and 93% respectively.
Future plans
Expanding our global footprintA: Penske Automotive plans to continue expanding its global footprint through acquisitions and expansion of existing dealerships. The company operates not only in the U.S., but also in Europe, Australia and other regions, and plans to continue to increase its presence in key markets. All this at a time when electric vehicles are booming. It wants to seize this opportunity in less developed markets.
Investing in technology: In line with the trend towards digitalization of the automotive industry, the company intends to strengthen its online and digital services. This includes expanding online shopping options, improving digital tools for customers and optimizing online business platforms. The company is focusing on offering customers convenient and efficient ways to purchase and service vehicles online.
Business Diversification: Penske is also focusing on diversifying its portfolio. In addition to new and used vehicle sales, the company plans to expand its financial services business, insurance products and other associated services that can increase overall profits. Nowadays, scaling up businesses is one of the major concerns of large companies.
Sustainability: the company's future plans include a commitment to sustainability and reducing its carbon footprint. $PAG+2.2% seeks to increase the supply of electric and hybrid vehicles and support environmental initiatives within its operations.
Improving the customer experience: Another key objective is to continuously improve the customer experience. The company plans to invest in employee training, new technologies and innovations to provide customers with the best possible service and convenience when shopping for and maintaining vehicles.
Outlook
The stock is currently in a very strong uptrend, which it started in 2020. It has been in a sideways trend for the last few months, but from a technical analysis point of view, this is an absolutely exemplary setup for further growth. A single share can now be bought for under $180, which was also the highest the company has ever traded at. With the current setup of their business, continued scaling of revenues and growth, we could see a new peak again in not too long. How do Wall Street analysts view the current situation surrounding this company?
Of the 10 analysts surveyed, only 3 of them would buy the stock now. But their outlook is very positive. According to them, the price per share could rise by as much as 21.28% in the next 12 months. If that were to happen, one share would sell for as much as $200 on the stock exchange. Another 3 analysts would just hold the stock and wait for further developments while 4 analysts would prefer to sell the stock and take profits. They estimate that the price could fall by as much as 30% in the next year, which is their darkest scenario. How do you feelabout $PAG+2.2%stock ? Are you intrigued by its story or do you prefer to stay away from the sector?
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