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Why Is Penske (PAG) Up 4.6% 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 4.6% in that time frame, outperforming 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 catalysts.

Penske Automotive Beat Q3 Earnings & Revenues Estimates

Penske Automotive Group, Inc. reported third-quarter 2019 adjusted earnings per share of $1.42 compared with $1.40 recorded in the year-ago quarter. Also, the bottom line beat the Zacks Consensus Estimate of $1.41. Despite the weak market conditions in the U.K., largely due to Brexit, the company managed to perform well in the third quarter on synergies from the Warner Truck Group acquisition.

Penske Automotive, which belongs to the Retail and Whole Sales industry, posted revenues of $5.97 billion for the quarter ended Sep 30, 2019. The figure rose from the year-ago quarter’s level of $5.66 billion. Further, it beat the Zacks Consensus Estimate of $5.77 billion.

The company’s gross profit rallied to $869.7 million from $852.6 million in the prior-year quarter. During the quarter under review, operating income increased 3.4% to $169.4 million.

Same-store retail unit sale increased 0.9% year over year to 129,834. Within the retail automotive segment, new-vehicle revenues declined 0.8% year over year to $2.32 billion while used-vehicle revenues remained flat at $1.82 billion year over year.

Segmental Details

Revenues in the Retail Automotive rose to $5155.4 million from $5148.5 million in the year-ago quarter.

In the quarter, Penske became the largest dealership group for Freightliner in North America with the acquisition of Warner Truck Centers, representing six dealership locations in Utah and Idaho which led the revenues in the Retail Commercial Trucks segment increase to $692.3 million from $385.3 million in the year-ago quarter.

Revenues in the Commercial Vehicles Australia/Power Systems and Other declined to $119.9 million from $124.8 million in the prior-year quarter.

Financial Position

Penske Automotive had cash and cash equivalents of $77.5 million as of Sep 30, 2019, up from $39.4 million recorded as of Dec 31, 2018. As of Sep 30, 2019, long-term debt amounted to $2.28 billion, up from $2.12billion as of Dec 31, 2018. The debt-to-capital ratio stands at 46.45%.

Dividend and Share Repurchase

On Oct 16, the company announced that its Board of Directors increased the dividend to its common stock shareholders to 41 cents per share. This marked the 34th consecutive increase in quarterly dividend.

In third-quarter 2019, the company repurchased 1,021,622 shares for $43.6 million or an average of $42.66 per share. In September 2019, the management increased the share repurchase authorization to $200 million.


 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, Penske has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile 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. Notably, Penske has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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