Penske Steady in Tough Market

In the reported 2008 second quarter, Penske Automotive Group's (PAG - Analyst Report) earnings from continuing operations per diluted share were $0.42, down from $0.43 in the year-ago period. Revenue was steady at $3.4 billion. Same-store sales decreased 6% on new vehicles down 8% and used vehicles up 7%. The Company currently projects earnings from continuing operations for the year to be in the range of $1.54 to $1.60.

Penske is well positioned among the auto retailer peer group. Its specialty and luxury product mix offers opportunity for long-term growth. Additionally, we are encouraged by positive same-store sales in used vehicles. However, rising interest rates, challenging industry conditions and a leveraged balance sheet dampen our outlook on the stock. Thus, we rate the shares a Hold with a six-month target price of $14.00.

The company historically has grown 6% faster than its peers, and the goal is to grow 10% per year for the next few years. In the near term, this trend is likely to continue, as the company is the exclusive distributor of the Mercedes-Benz Smart fortwo, a microcar that achieves 33 mpg in city and 41 mpg on the highway according to 2008 EPA testing requirements. PAG estimates that it will deliver 20,000 to 25,000 vehicles in 2008

A diversified brand mix, geographical diversification and same store sales growth are the other attractive features of PAG. As 93% of the U.S. auto industry is primarily unconsolidated, there is an opportunity for acquisitions both in the U.S. and in other regions. Recently, PAG announced that its Board of Directors has authorized the company to repurchase up to $150 million of its outstanding common stock, depending on market conditions, share price and other factors.

Read the full analyst report on PAG