Penske (PAG) Down 12.9% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Penske Automotive (PAG). Shares have lost about 12.9% 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 the most recent earnings report in order to get a better handle on the important drivers.

Penske Automotive Beat Q4 Earnings & Revenues Estimates

Penske Automotive reported fourth-quarter 2019 adjusted earnings per share of $1.25 compared with $1.11 recorded in the year-ago quarter. Also, the bottom line beat the Zacks Consensus Estimate of $1.20. Despite weak market conditions in the U.K., largely due to Brexit, the company managed to perform well in the fourth quarter on the back of robust U.S. retail operations along with synergies from the Warner Truck Group acquisition.

Penske Automotive, which belongs to the Retail and Whole Sales industry, posted revenues of $5,881 million for the quarter ended Dec 31, 2019. The figure rose from the year-ago quarter’s level of $5,439 million. Further, it beat the Zacks Consensus Estimate of $5,693 million.

The company’s gross profit increased to $866.5 million from $808.1 million in the prior-year quarter. During the quarter under review, operating income increased 11.9% to $152.8 million.

Same-store retail unit sales increased 1.9% year over year to 118,598. Within the retail automotive segment, new-vehicle revenues rallied 6.2% year over year to $2.4 billion while used-vehicle revenues increased 3.7% year over year to $1.67 billion.

Segmental Details

Revenues in the Retail Automotive rose to $5,162.7 million from $4949.2 million in the year-ago quarter. Gross profit was $755.1 million compared with $720.1 million in the fourth quarter of 2018. It also topped the Zacks Consensus Estimate of $722 million in the quarter.

In the quarter, revenues in the Retail Commercial Trucks segment increased to $599.1 million from $358 million in the year-ago quarter. Gross profit for the segment was $78.3 million, which missed the Zacks Consensus Estimate of $82 million. However, it increased from the year-ago figure of $54.7 million in the quarter.

Revenues in the Commercial Vehicles Australia/Power Systems and Other declined to $119.6 million from $132.1 million in the prior-year quarter. Gross profit was $33.1 million compared with $33.3 million in the fourth quarter of 2018. It missed the Zacks Consensus Estimate of $36.10 million in the quarter.

Financial Position

Penske Automotive had cash and cash equivalents of $28.1 million as of Dec 31, 2019, down from $39.4 million as of Dec 31, 2018. As of Dec 31, 2019, long-term debt amounted to $2.26 billion, up from $2.12 billion as of Dec 31, 2018. The debt-to-capital ratio was 44.53%.

Share Repurchase

The company repurchased 3,986,836 shares for $174.1 million or an average of $43.68 per share in 2019. As of Dec 31, 2019, the company had share repurchase authorization of approximately $200.0 million.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Penske has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. 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 B. 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 this revision indicates a downward shift. Notably, Penske has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.