Standard & Poor's recently upgraded a positive outlook on Penske Automotive Group Inc. (PAG - Analyst Report) from a ‘stable’ perspective. S&P asserts that if the company is successful in increasing its earnings and reducing debt, its credit rating can improve further.
S&P assigns a "B-plus" rating to the company’s corporate credit. According to S&P, the rating is based on the reduction of debt, improvement in earnings and stable vehicle sales during the fiscal 2010.
According to S&P, the company efficiently managed cost during recession which clearly had its effect, particularly in the first three quarters of fiscal 2009. Cost of sales dipped 13.8%, 32.1% and 33.4%, respectively, on a year over year basis.
Besides cost of sales, the company reduced its debt level in all the three quarters, improving debt-to-capitalization ratio to 54.9% at the first quarter, 51.4% at the end of second quarter and 51% at the end of third quarter of fiscal 2009.
In the recent first quarter Penske’s revenue increased 15.3% year over year to $2.86 billion, mainly driven by an increase in total retail unit sales and improving trends in the service and parts operations. Earnings per share soared 50% year over year to 39 cents during the same period.
During the first quarter of fiscal 2011, the company started rebounding by acquiring three franchises including an Audi franchise in Willoughby, Ohio, and a BMW and a MINI franchise in the U.K. With these new developments, Penske expects to contribute almost $100 million to its revenues annually. Furthermore, it plans to open Nissan and Infiniti franchises in downtown San Francisco, California, during the third quarter of 2011.
Based in Bloomfield Hills, Michigan Penske Automotive was established in 1990 and is the second-leading automotive retailer in the U.S. Following the acquisition of Fred Baker Porsche and Audi franchises in the Cleveland metropolitan area, Penske Automotive operates 172 franchises in 17 states and Puerto Rico and 154 franchises located internationally, primarily in the U.K as well as Germany and Mexico. The company competes with the likes of AutoNation Inc. (AN - Analyst Report) and Group 1 Automotive Inc. (GPI - Snapshot Report). Penske maintains a Zacks #3 Rank on its shares, which translates into a short-term ‘Hold’ rating.