On Friday, Asbury (NYSE:ABG) Automotive Group (NYSE:ABG) experienced a shift in its stock rating as Craig-Hallum adjusted its stance on the company. The firm moved its rating from Buy to Hold, while maintaining a price target (PT) of $230.00 for the automotive retailer's shares.
The decision to downgrade comes amid observations that new vehicle supply has increased significantly, reaching a three-year peak in dealership inventories during the fourth quarter. This surge in availability is leading to a quicker than anticipated normalization of gross profit per unit (GPU), a key profitability metric for auto dealerships.
"While this was expected eventually, we think the stock will have a hard time outperforming until margins have rebased and accounting noise from TCA transitions lessens (biggest impact from revenue/profitability deferrals will be in 2024-2025)," said the analyst.
Despite the downgrade, Craig-Hallum maintains a positive outlook on Asbury Automotive's long-term prospects, citing the company's competitive advantages. These include its digital platform ClickLane, its captive service business through TCA, and the resilience and durability of its profitability and free cash flow. However, the firm has opted for a more cautious approach, choosing to wait for a more favorable opportunity to recommend re-entry into the stock.
InvestingPro Insights
Asbury Automotive Group (NYSE:ABG) has recently undergone a rating change, and investors are keenly observing the company's financial health and market position. According to InvestingPro data, Asbury Automotive Group has a market capitalization of $4.26 billion, with a trailing P/E ratio of 6.25, indicating that the stock may be trading at a low earnings multiple compared to its earnings over the last twelve months as of Q4 2023.
While the company's revenue growth has seen a slight decline of 4.09% in the same period, it has managed to maintain a gross profit margin of 18.62%. This demonstrates that despite the challenges in the automotive sector, Asbury Automotive has been able to sustain a reasonable level of profitability. Furthermore, the company's operating income margin stands at 7.23%, reflecting its operational efficiency.
InvestingPro Tips highlight that Asbury Automotive Group's management has been actively engaging in share buybacks, which can be a sign of confidence in the company's value. Additionally, analysts predict that the company will be profitable this year, which aligns with the firm's profitable performance over the last twelve months. It's also worth noting that Asbury Automotive has achieved a high return over the last decade, underscoring its long-term growth potential. However, it does not pay a dividend to shareholders, which may be a consideration for income-focused investors.
For those looking to delve deeper into Asbury Automotive Group's financials and stock performance, there are 6 additional InvestingPro Tips available on the platform. To benefit from these insights, readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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