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Group 1 Automotive Surges 94.4% YTD: What's Working in Favor?

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Shares of Group 1 Automotive, Inc. (GPI - Free Report) have soared 94.4% year to date, aided by its stellar third-quarter 2019 performance in the United States, partially offset by weakness in the U.K. market. The company has also outperformed its industry’s rise of 54.5% during the same time frame.

Group 1 Automotive, a Zacks Rank #1 (Strong Buy) stock, has a market cap of $1.88 billion. The company has an expected long-term earnings per share growth rate of 5.94%.

Let’s analyze the reasons behind the company’s bullish price performance and find out if there’s room for further appreciation:

Earnings & Revenues Beat Consensus Mark in Q3: Group 1 Automotive reported adjusted earnings per share of $3.02 for the September-end quarter. The figure improved from the prior-year quarter’s $2.47 as well as beat the Zacks Consensus Estimate of $2.72. Total revenues in the quarter came in at $3.1 billion, indicating year-over year growth of 7.9%. Also, the top-line figure outpaced the Zacks Consensus Estimate of $2.9 billion.

Healthy Growth Projections: The Zacks Consensus Estimate for Group 1 Automotive’s ongoing-year earnings is currently pegged at $10.60, reflecting year-over-year growth of 18.97%. The same for 2020 is pinned at $11.24, indicating a year-over-year improvement of 5.99%.

Positive Earnings Surprise History: As far as earnings surprises are concerned, Group 1 Automotive is on an excellent footing, having surpassed the Zacks Consensus Estimate in three of the last four quarters, the average beat being 5.60%.

Growth Drivers in Place

Group 1 Automotive's strong business execution of used vehicles and after-sales units drove the company’s top line in the recently-reported quarter. Apart from solid sales of used retail units in the United States, the after-sales unit’s rising customer pay up and wholesale parts as well as collision bolstered revenues. The implementation of pricing strategies and Val-U-Line initiative in the nation fueled used vehicles’ gross profit growth.

Since the second half of 2018, growth in the company’s Parts and Services segment has been better than expected for all public dealers. This upbeat performance is anticipated to remain at the higher end of its historical levels, supported by a near-record number of vehicles in the serviceable fleet, increased vehicle complexity, and higher focus on customer retention at the dealer level.

Group 1 Automotive’s customer pay business has outperformed the industry since the second half of 2018. The company’s central call center facilitates online and efficient scheduling across its dealer network, while the implementation of a flexible four-day work schedule has resulted in higher recruitment and retention rates of technicians.

The company regularly acquires and divests dealerships and franchises to expand its business. It expanded its footprint in the U.K. through acquisitions over the past few years. This July, Group 1 Automotive acquired five new franchises in the U.K. After expansion in this region, the company now intends to fortify its presence in the United States. For the short term, it aims to acquire attractive businesses in the U.S. markets, which will open up growth opportunities, and divest the unprofitable ones. Earlier this June, the company also disposed four franchises.

Impressive performance in the United States amid soft new vehicle-sales market has been driving the company’s profits. Numerous initiatives implemented across its used vehicle and service departments continue to gain traction and deliver stellar same-store growth. Further, Group 1 Automotive pursues different capital-deployment strategies, in order to boost shareholders’ value, which highlights its cash-flow strength.

Other Stocks to Consider

A few other top-ranked stocks in the Auto-Tires-Trucks sector are Spartan Motors, Inc. SPAR, SPX Corporation SPXC and BRP Inc. DOOO, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Spartan Motors has an estimated earnings growth rate of 85.42% for the ongoing year. The company’s shares have surged 127.4% in a year’s time.

SPX has an expected earnings growth rate of 23.18% for 2019. The company’s shares have appreciated 61.2% in the past year.

BRP has a projected earnings growth rate of 18.49% for the current year. Its shares have gained around 47.7% over the past year.

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