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Auto Retail & Whole Sales Industry: Driving Along Regular Brakes

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A well-functioning automotive sector hinges upon a smooth retail and wholesale network. Through retailing and dealerships, companies in the Zacks Auto Retail and Wholesale industry execute a variety of duties, including selling of new and used vehicles and light trucks, selling of auto parts, providing repair and maintenance services, and arranging vehicle financing.

The industry includes prominent names such as Penske Automotive Group, Inc. (PAG - Free Report) , Lithia Motors, Inc. (LAD - Free Report) , AutoNation, Inc. (AN - Free Report) and others.

Let’s take a look at the industry’s three major themes:

•    At present, the Auto Retail & Whole Sales industry is enjoying some discernible advantages in the form of growing consumer disposable income, easy availability of credit and of course a better employment scenario. It is anticipated that the industry revenues will grow as an increasing number of consumers are entering the market.

•    The space is witnessing significant changes in its operating environment. Digitization, regulations and shift to autonomous and electric vehicles have necessitated a rethinking of the retail model.

•    Tighter inventory levels and higher interest rates have added to the pressure on the industry, particularly for the independent dealers. Worries over auto tariffs have aggravated the situation.

Zacks Industry Rank Indicates Solid Prospects

The Zacks Auto Retail and Wholesale industry is a nine-stock group within the broader Zacks Auto sector. The industry currently carries a Zacks Industry Rank #9, which places it in the top 4% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates strong near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Over the past year, the industry’s earnings estimate for the current year has gone up by 15.9%.

Before we present a few Auto retail & wholesale stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Underperforms Both Sector and S&P 500

Over the past year, the Auto Retail & Wholesale industry has underperformed its own sector as well as the Zacks S&P 500 composite.

Over this period, the industry has declined 29.9% compared with the sector’s decline of 23%. The Zacks S&P 500 composite has declined 3.4% in the same time frame.

One-Year Price Performance

Industry’s Current Valuation

On the basis of trailing 12-month enterprise value-to EBITDA (EV/EBITDA), which is a commonly used multiple for valuing auto stocks, the industry is currently trading at 7.19X compared with the S&P 500’s 10.21X and the sector’s trailing-12-month EV/EBITDA of 7.43X.

Over the past five years, the industry has traded as high as 9.71X, as low as 6.21X and at a median of 8.13X, as the chart below shows.

Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio

Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio


Bottom Line

A closer look at the Zacks Auto Retail & Wholesale industry leads to some interesting revelations. Decent industry rank and cheap valuation are some bright spots. These two fundamental positive factors are complemented by a robust economy and favorable labor market conditions.

However, several changes put a huge pressure on the revenue prospects of the industry at least in the near term. The industry’s readiness toward these changes such as occasional launch of new models, and introduction of electric and autonomous vehicles are some headwinds before the industry.

A couple of stocks in the Auto Retail and Wholesale industry space currently carrying a Zacks Rank #1 (Strong Buy) are Asbury Automotive Group, Inc. (ABG - Free Report) and Titan Machinery Inc. (TITN - Free Report) . You can see the complete list of today’s Zacks #1 Rank stocks here.

Asbury Automotive: The Zacks Consensus Estimate for current-year earnings of this California-based company has remained unchanged at $8.28 per share over the past 30 days.

Price and Consensus: ABG


Titan Machinery: The Zacks Consensus Estimate for current-quarter earnings of this company has declined 60% to 2 cents per share over the past 30 days.

Price and Consensus: TITN

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