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Bear of the Day: Group 1 Automotive (GPI)

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Group 1 Automotive, Inc. (GPI - Free Report) is in a tough industry in autos. This Zacks Rank #5 (Strong Sell) is expected to see a decline in earnings this year.

Group 1 Automotive operates 171 auto dealerships, 224 franchises and 47 collision centers in the US, the United Kingdom and Brazil. It sells 32 brands of autos, light trucks and new and used cars.

Still Expanding in the UK

On July 5, Group 1 announced it would acquire the Beadles Group, which has 7 brands, including Jaguar, Land Rover, Volkswagen, Skoda, Toyota, Vauxhall and Kia, across 12 dealerships in the southeastern part of greater London.

They are expected to generate $330 million in annual revenues.

With this acquisition, Group 1 will have 43 UK dealerships.

The Beadles Group has been in business since 1893 so Group 1 is getting an established brand with a reputation for customer service.

With its 43 dealerships, Group 1 expects to be generating over $2 billion in revenue from the UK.

Estimates Being Cut

Even with this latest acquisition, the analysts are still bearish.

In the United States, auto sales are on the decline for the first time in 8 years as it appears "peak auto" is a real thing.

Group 1 is expected to announce its second quarter results next week, on July 27.

But one analyst isn't even waiting for that. 1 estimate for the full year has been cut in the last 7 days which has pushed the 2017 Zacks Consensus Estimate to $7.26 from $7.78 in the last 90 days.

That's an earnings decline of 2.1% as Group 1 made $7.42 last year.

Analysts are loathe to cut estimates just ahead of an earnings report because they don't want to get it wrong. They usually only do it if they have some conviction that they are too optimistic about the quarter.

Shares in Bear Territory

Shares of Group 1 have plunged about 20% year-to-date which puts them in bear market territory.

They're cheap, with a forward P/E of just 8.4, but shares of the auto retailers get dirt cheap as the cycle starts to change to the downside.

None of the auto retailers have good Zacks Ranks. But if you must buy an auto retailer right now, Lithia Motors (LAD - Free Report) is a Zacks Rank #3 (Hold). But be aware, it reports earnings on July 28.

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