On Wednesday, Craig-Hallum maintained a Hold rating on Asbury (NYSE:) Automotive Group (NYSE:ABG) and increased the price target to $260 from $240. The firm’s analyst highlighted Asbury’s solid third-quarter performance despite facing several challenges including original equipment manufacturer (OEM) stop sales, the impact of multiple hurricanes, the ongoing normalization of new vehicle gross profit per unit (GPU), and specific issues with OEM Stellantis (NYSE:).
The analyst noted that despite these setbacks, the situation is improving, with recent hurricanes leading to insurance proceeds and a potential rise in vehicle pricing, GPU, and demand. The OEM stop sales, which affected brands such as Toyota (NYSE:), Lexus, BMW (ETR:), and Honda (NYSE:), are expected to result in a backlog of buyers with high intent, as well as high-margin warranty work. Furthermore, Stellantis has initiated measures to better support dealers through customer incentives and reduced pressure on dealer inventory supply.
The report suggests that these developments are creating a more favorable environment for investment opportunities within the auto dealer sector, including Asbury. However, the decision to maintain the Hold rating was influenced by concerns over increased leverage and anticipated profitability pressures in 2025 and 2026 related to TCA conversions. The analyst anticipates a clearer financial picture for Asbury in the longer term.
Asbury Automotive Group’s third-quarter results showed resilience in the face of industry-wide challenges, and the firm’s analyst expects that the current headwinds will shift to tailwinds going forward. Despite the positive outlook for the sector, Craig-Hallum advises caution due to the financial challenges projected in the coming years.
In other recent news, Asbury Automotive Group has been the subject of numerous developments. CFRA has adjusted its 12-month price target for Asbury from $260.00 to $230.00, maintaining a Hold rating. This adjustment followed reduced earnings per share forecasts for the upcoming years and a reported third-quarter earnings per share of $6.35, a decrease from the same period last year. In addition, Asbury Automotive secured a court order compelling CDK Global (NASDAQ:) LLC to transfer dealership data to Tekion Corp, a move that could potentially influence the company’s strategic direction and operational efficiency.
Stephens initiated coverage on Asbury, assigning an Equal Weight rating and setting a price target of $216. The firm projects year-over-year declines in EBITDA and earnings per share for Asbury through 2025, with growth expected in 2026. Meanwhile, the U.S. Federal Trade Commission (FTC) has filed a lawsuit against Asbury, alleging discriminatory pricing practices at three of its car dealerships in Texas. Asbury intends to contest the lawsuit.
Asbury reported a record total revenue of $4.2 billion and record parts and service revenue of $581 million, despite a CDK outage that temporarily disrupted operations. The company’s adjusted net income for the quarter reached $236 million, with an adjusted earnings per share of $6.40.
InvestingPro Insights
Asbury Automotive Group’s financial metrics and market performance offer additional context to the Craig-Hallum analysis. According to InvestingPro data, the company’s market capitalization stands at $4.65 billion, with a P/E ratio of 7.81 for the last twelve months as of Q2 2024. This relatively low P/E ratio could suggest that the stock is undervalued, aligning with Craig-Hallum’s increased price target.
The company’s revenue growth of 13.46% in Q2 2024 demonstrates its ability to expand despite the challenges mentioned in the article. However, an InvestingPro Tip notes that Asbury operates with a significant debt burden, which may explain Craig-Hallum’s concerns about increased leverage.
Another InvestingPro Tip indicates that analysts predict the company will be profitable this year, supporting the overall positive outlook. However, it’s worth noting that 4 analysts have revised their earnings downwards for the upcoming period, which could be related to the anticipated profitability pressures mentioned in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 6 additional tips for Asbury Automotive Group, providing a deeper understanding of the company’s financial health and market position.
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