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Why Is Penske (PAG) Up 2.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Penske Automotive (PAG - Free Report) . Shares have added about 2.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Penske due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Penske Automotive's Q3 Earnings Surpass Estimates

Penske reported third-quarter 2020 adjusted earnings of $2.87 per share, surpassing the Zacks Consensus Estimate of $1.59.

Markedly, higher-than-expected revenues from the Retail Automotive segment resulted in this outperformance. Revenues from the segment came in at $5,258 million, beating the Zacks Consensus Estimate of $4,969 million. Moreover, the bottom line came in significantly higher than the year-ago quarter’s profit of $1.42 per share, up a whopping 102% year on year.

The auto retailer registered net sales of $5,971.6 million, outpacing the Zacks Consensus Estimate of $5,543 million. The top-line figure also comes in marginally higher than the year-ago quarter’s $5,967.6 million.

The company’s gross profit for the reported quarter increased to $956.5 million from the prior-year quarter’s $869.7 million. During the third quarter, operating income jumped 67.8% from the prior-year period to $284.2 million.

For the September-end quarter, same-store retail unit sales slid 4.5% year over year to 122,268. Within the Retail Automotive segment, same-store new vehicle revenues rose 2.7% year on year to $2,349.8 million, while same-store used-vehicle revenues improved 8.4% to $1,938.2 million.

Penske operates 16 Used Vehicle SuperCenters. The company anticipates to open two additional Used Vehicle SuperCenters over the next 90 days and has four additional sites under development which would expand its current footprint of SuperCenters by 40%.

Segmental Performance

During the July-September period, revenues in the Retail Automotive segment climbed to $5,258 million from the year-ago quarter’s $5,155.4 million. Further, gross profit of $849.7 million compared favorably with the $747.5 million reported in third-quarter 2019.

In the September-end quarter, revenues in the Retail Commercial Truck segment decreased to $590.9 million from the year-ago level of $692.3 million. Gross profit for the segment was $73.1 million, down from the year-earlier quarter’s $86.6 million.

Revenues in the Commercial Vehicles Australia/Power Systems and Other for the reported quarter increased to $122.7 million from the $119.9 million generated in the prior-year quarter. Gross profit came in at $33.7 million compared with the $35.6 million witnessed in third-quarter 2019.

Costs & Financial Position

During the third quarter, there was a 10.1% drop in selling, general and administration expenses as a percentage of gross profit from the year-ago quarter’s level.

Penske had cash and cash equivalents of $92.7 million as of Sep 30, 2020, up from $28.1 million as of Dec 31, 2019. As of Sep 30, 2020, long-term debt amounted to $2,216.1 million, down from $2,257 million as of Dec 31, 2019.

Dividends & Share Repurchase

On Oct 14, Penske announced the reinstatement of a cash dividend in the amount of 42 cents per share payable on Dec 1 to shareholders of record as of Nov 10, 2020. The company repurchased 1,027,736 shares for the nine-month period ended Sep 30, 2020 for $34.4 million. As of Sep 30, 2020, Penske had a share-repurchase authorization of $170.6 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 33.31% due to these changes.

VGM Scores

At this time, Penske has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Penske has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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