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Penske (PAG) Down 0.3% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Penske Automotive (PAG - Free Report) . Shares have lost about 0.3% in that time frame, underperforming the S&P 500.

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

Penske Puts Up a Stellar Q2 Show

Penske adjusted earnings of $4.47 per share in the second-quarter of 2021, increasing a whopping 698% year over year and surpassing the Zacks Consensus Estimate of $3.99. Markedly, higher-than-expected gross profit across all segments resulted in this outperformance.

The auto retailer registered net sales of $6,987.5 million, outpacing the Zacks Consensus Estimate of $6,494 million. The top-line figure also rose 91.4% from the comparable year-ago period.

The company’s gross profit for the reported quarter increased 113.9% on a year-over-year basis to $1,182.7 million. Operating income also jumped 464% from the prior-year period to $402.7 million.

For the June-end quarter, same-store retail unit sales increased 81.7% year over year to 130,892. Within the Retail Automotive segment, same-store new vehicle revenues rose 104.9% year on year to $2,797.2 million, while same-store used-vehicle revenues grew 99.4% to $2,295.6 million. In fact, the numbers compared favorably even with the pre-pandemic levels, thanks to robust volumes and vehicle margins, operational efficiency, high demand for class-8 trucks along with record performance at Penske Transportation Solutions. Same-store retail units and revenues edged up 6.1% and 23.4%, respectively, from the second quarter of 2019.

Segmental Performance

For the April-June period, revenues in the Retail Automotive segment came in at $6,197.6 million, increasing from $3,153.5 million in second-quarter 2020. Gross profit of $1,040.4 million compared favorably with $466.3 million reported in the year-ago quarter and topped the consensus mark of $635 million.

For the June-end quarter, revenues in the Retail Commercial Truck segment increased to $625.3 million from the year-ago level of $399.2 million. Consequently, gross profit for the segment was $102.7 million, increasing from the year-earlier level of $60.2 million and beating the consensus mark of $75 million.

Revenues in the Commercial Vehicles Australia/Power Systems and Other for the reported quarter surged 67.3% year over year to $164.6 million. Gross profit came in at $39.6 million, exceeding $26.4 million recorded in second-quarter 2020 and surpassing the Zacks Consensus Estimate of $27.40 million.

Financial Tidbits

For the quarter under review, SG&A costs totaled $749.8 million, up 65.3% year over year. Penske had cash and cash equivalents of $165.2 million as of Jun 30, 2021, up from $49.5 million at 2020-end. Long-term debt amounted to $1,436.3 million, down from $1,602.1 million as of Dec 31, 2020.

The company declared a dividend hike last month. It increased its payout to 45 cents, which will be payable on Sep 1 to shareholders on record as of Aug 10. During first-half 2021, Penske repurchased 495,307 shares for $40.9 million and had $142.5 million remaining under the current share-repurchase authorization at the end of second-quarter 2021. In July, it boosted the share buyback authorization to $250 million. 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 7.34% due to these changes.

VGM Scores

Currently, Penske has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 broadly 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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