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Group 1 (GPI) Strengthens Portfolio With Beck & Masten Kia Buyout

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Group 1 Automotive, Inc. (GPI - Free Report) recently made headlines with its latest acquisition of Beck & Masten Kia, a dealership located in the Houston metropolitan area. This strategic move expands Group 1's presence in the Houston market, bringing its total brands and dealerships in the area to 15 and 18, respectively. With expected annual revenues of $85 million, this acquisition contributes to Group 1's impressive year-to-date total acquired revenues of $1 billion.

President and CEO of Group 1, Daryl Kenningham, expressed enthusiasm about the acquisition, highlighting the potential of the Kia brand in Houston. Kia America achieved record-breaking first-quarter sales, and Houston is the second fastest-growing major metropolitan area in the United States. Kenningham believes that this combination presents an excellent opportunity for Group 1 to capitalize on the thriving automotive market.

Shares of GPI have rallied more than 25% over the past year, outperforming the industry’s growth of 5%.

What’s Driving GPI Stock?

The company's consistent acquisitions of dealerships and franchises demonstrate its commitment to expanding and optimizing its portfolio. Moreover, Group 1's previous acquisitions have already proven fruitful. The acquisition of Prime Automotive in the Northeastern United States and the Robinsons Group in the UK have diversified the company's footprint and are expected to contribute to its top-line growth. Since 2021, Group 1 has completed transactions representing $3.6 billion in acquired revenues.

Group 1's diversified product mix and multiple streams of income contribute to its appealing profile. The company generates revenues from various businesses, including used and new vehicle retail, finance, insurance, as well as automotive repair and maintenance. This diversified portfolio positions Group 1 well for both top and bottom-line growth. Group 1's omnichannel efforts to boost sales are another reason for investors to consider holding onto the stock. The company's digital initiatives, such as the online customer scheduling appointment system and the AcceleRide platform for online retailing, have significantly improved customer experience and productivity. Notably, units sold through AcceleRide experienced an impressive 117% year-over-year growth in the last reported quarter.

The company's investor-friendly moves also instill optimism among shareholders. Group 1 raised its 2023 annual dividend rate by 20%, demonstrating its commitment to rewarding shareholders. Additionally, the company has repurchased $35 million worth of shares, reflecting management's efficiency in capital allocation. Group 1's return on equity (ROE) of 31% compares favorably to the auto sector's 11.6%, further highlighting its commitment to maximizing shareholder value.

A Few Concerns

However, it is essential to consider potential headwinds surrounding the stock. The company's tight inventory, particularly for import and luxury brands, may result in lost revenues. With around 27% of Group 1's U.S. business relying on Toyota and Lexus, which face tight supply at only five days' worth, inventory constraints pose a challenge. Furthermore, the auto retail industry is susceptible to macroeconomic headwinds. Declining used vehicle prices and expected margin declines in the new vehicle segment could also limit Group 1's near-term prospects.

Bottom Line

While challenges such as tight inventory, macroeconomic headwinds, and competition exist, closely monitoring GPI's ability to navigate these issues will be crucial. Overall, with its strategic acquisitions, resilient business model, and commitment to shareholder value, retaining GPI in an investment portfolio can offer the potential for long-term growth and returns.

Group 1 currently carries a Zacks Rank #3 (Hold).

Key Picks From the Auto Space

A few better-ranked players in the auto space include Ford (F - Free Report) , Stellantis (STLA - Free Report) and BMW AG (BAMXF - Free Report) .

Ford is one of the leading automakers in the world. Its robust BEV lineup — with Mustang Mach-E, E-Transit and F-150 Lightning — is set to drive top-line growth. The company currently sports a Zacks Rank #1 (Strong Buy) and has a Value Score of A.

The Zacks Consensus Estimate for F’s 2023 sales implies year-over-year growth of 7.5%. The consensus mark for 2023 and 2024 EPS has moved north by 4 cents and 3 cents, respectively, over the past seven days.

Stellantis, an Italian-American carmaker, is one of the notable names in the auto space. Stellantis’ Dare Forward 2030 strategy bodes well. The core objective of Dare Forward 2030 is to achieve 100% of total passenger car sales in Europe and 50% of light-duty truck and passenger car sales in the United States as battery electric vehicles by the end of the decade.

The Zacks Consensus Estimate for STLA’s 2023 sales implies year-over-year growth of 13.4%. The consensus mark for 2023 and 2024 EPS has moved north by 27 cents and 49 cents, respectively, over the past 60 days. The stock sports a Zacks Rank #1 and has a Value Score of A.

BMWis a Germany-based auto titan that designs, manufactures, and distributes luxury vehicles and motorcycles.BMW AG is taking great strides in electrification and expects EVs to account for 50% of its global sales by 2030. For 2023, the company plans to increase its BEV share to 15%.

The Zacks Consensus Estimate for BAMXF’s 2023 sales implies year-over-year growth of 9%. The consensus mark for 2023 and 2024 EPS has moved north by 6 cents and 81 cents, respectively, over the past 30 days. The stock sports a Zacks Rank #1 and has a Value Score of A.

You can see the complete list of today’s Zacks #1 Rank stocks here

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