Shares of Group 1 Automotive Inc. (GPI) reached their 52-week high of $61.00 on September 13, driven by solid second quarter results, accretive acquisitions and a marked recovery for its largest customer – Toyota Motor Corp. (TM). This automotive retailer has now delivered 15 straight quarters with a positive earnings surprise, and achieved the Zacks #1 Rank (Strong Buy) on September 11.
Impressive Second Quarter
On July 26, Group 1 Automotive announced a 21.4% rise in adjusted earnings per share to $1.25 for the second quarter of 2012, reflecting a positive earnings surprise of 7.8% over the Zacks Consensus Estimate. Revenues grew 28.6% to $1.9 billion, driven by double digit growth in same store retail new vehicle (21.5%), used vehicle (18.8%) and Finance and insurance (30.8%) revenues.
The company achieved solid growth and surpassed the industry unit sales rate, despite the impact of a major hailstorm that severely damaged about 2,200 vehicles at seven of its dealerships in Oklahoma during the quarter.
Year to date, Group 1 has acquired 12 franchises, including 6 Audi franchises in the U.K. and 2 Volkswagen and 1 Honda franchise in Florida during the second quarter. The acquired franchises are expected to generate $504.5 million in annual revenues.
Earnings Estimates Moving Up
Over the last 60 days, the Zacks Consensus Estimate for 2012 moved up 4.9% to $4.69, while the Zacks Consensus Estimate for 2013 advanced 5.8% to $5.29. These outlooks reflect annualized growth of 29.5% for 2012 and 12.9% for 2013.
Valuation Looks Reasonable
Group 1 Automotive currently trades at a forward P/E of 12.9x, a 9.3% premium to the peer group average of 11.8x. However, its price-to-book of 1.6x is at a discount of 20.0% compared to the peer group average of 2.0x. Meanwhile, its price-to-sales (P/S) ratio of 0.2 is the same as the peer group average. It also has a PEG ratio of 0.64, which is less than one and indicates that the stock is reasonably valued given the expected long-term earnings growth rate of 20.3%.
Chart Shows Strength
The stock began outperforming the 50-day and 200-day moving averages after the release of second quarter results, and currently stands above its 50-day average of $53.23 and 200-day average of $52.62.
Volume is fairly strong, averaging roughly 236K daily. The 1-year return for the stock is 54.5% compared with the S&P 500’s return of 27.3%.
Headquartered in Houston, Texas, Group 1 Automotive was founded in 1995. The $1.38 billion company is one of the largest automotive retailers in the U.S., which sells new and used cars and light trucks; arranges vehicle financing, service and insurance contracts; provides automotive maintenance and repair services; and sells vehicle parts. It owns and operates 122 automotive dealerships, 159 franchises, and 28 collision centers in the U.S. and the U.K. that offer 32 brands of automobiles.
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