Penske Automotive Group Inc. ( PAG - Analyst Report ) continues to deliver positive earnings surprises due to commendable performances in the U.S. and in overseas markets, as well as its fruitful diversification strategies. The second largest automotive retailer in the U.S. (in terms of revenues) reported first-quarter earnings that outstripped the Zacks Consensus Estimate by 14.6%. With a price-to-sales (P/S) ratio of just 0.18, this Zacks #1 Rank (Strong Buy) is a true value pick.

Robust Growth in 1Q

On April 25, Penske posted a hefty 41% gain in first-quarter earnings to 55 cents per share, marking 12 positive surprises since 2009 (excluding one tally). Higher unit sales (up 18.1%) and an improvement in the used-to-new vehicle ratio to 0.89 from 0.78 boosted the company’s revenues by 17.9% to $3.2 billion. Total same-store retail revenues increased 7.5% to $2.76 billion.

Penske continues to benefit from its diversified business in both the U.S. and international markets. During the quarter, retail unit sales went up 12.3% in the U.S. while it surged 30.7% overseas. Same-store retail revenues rose 8.5% in the U.S. and 5.9% internationally.

On June 1, Penske also paid a quarterly dividend of 11 cents per share, which is up from the prior-year by 10%.

The company is optimistic about the U.S. market, which continues to revive with the help of strong pent-up demand, lower cost of credit and planned introduction of new models by many automakers.

Estimates Moving Up

In the past 90 days, the Zacks Consensus Estimate moved upward by 6.9% to $2.18 for 2012 and by 4.3% to $2.42 for 2013. The Zacks Consensus Estimates for 2012 and 2013 reflect an annualized growth of 21.1% and 11.0%, respectively.

Valuation is Impressive

After slipping in the second half of 2011 due to the impact of the Japanese earthquake and tsunami, shares have been rising again in 2012 and reached its 52-week high on April 20 at $27.58.

Penske has strong value characteristics. In addition to a low P/S, it is currently trading at a forward P/E multiple of 10.9 and a P/B multiple of 1.81. (A P/S ratio lower than 1.0, a P/E below 15.0 and a P/B ratio under 3.0 generally indicate value.) Moreover, the company has a 1-year ROE of 15.6%, which is higher than its peer group average of 15.3%. It also has a PEG ratio of 0.42, which is less than one and indicates that the stock is reasonably valued given the expected growth.

Headquartered in Bloomfield Hills, Michigan, Penske Automotive Group was established in 1990. The $2.14 billion company operates 168 franchises in 17 states and Puerto Rico, and 167 franchises located outside the U.S., primarily in the U.K. It represents 40 different brands and 29 collision repair centers. About 96% of its total retail revenue comes from non-U.S. brands.