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Penske Automotive Offers Value With Or Without The Dividend

Jun. 05, 2020 8:57 AM ETPenske Automotive Group, Inc. (PAG)2 Comments


  • PAG shares are still well off their highs despite a huge rebound rally.
  • Investors appear to be pricing in more weakness than I see as reasonable.
  • With the stock at just 8.8 times normalized earnings, I see valuation upside with or without resumption of the dividend.

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The COVID-19 outbreak has disrupted many industries, not the least of which has been automobile production and sales in the US. Penske Automotive Group (NYSE:PAG) is a big player in the car retail space in what is a very fragmented market in the US. The company's shares plummeted from $53 to just $20 in the space of a few weeks earlier this year, but have since rebounded to $40. While I wish I had bought Penske at $20, I still think there is value to be had today, and despite the suspension of the dividend, I think Penske is worth a look.

Diversification and a strong track record

Penske has a fairly diversified portfolio of automotive-related businesses and investments in similar businesses.

Source: Investor presentation

This diversification works as it sells new cars, used cars, and has a sizable trucking business that offers a variety of services. Penske, therefore, is not a pure-play car dealer that is entirely dependent upon US consumers, but rather a more diversified way to gain exposure to transportation in general.

Source: Investor presentation

Revenue isn't particularly diversified because the company's 250+ automotive dealerships generate enormous revenue relative to the rest of the business. However, on an EBT basis, the scales are much more balanced. While diversification isn't a panacea against downturns by any means, I like the fact that Penske has meaningful exposure to trucking via its retail truck business, and its JV ownership in Penske Transportation Solutions.

The model has certainly worked in the past with results since the Great Recession below showing strong growth over time.

Source: Investor presentation

Revenue grew from 2010 to 2019 at an average rate of 10% annually, which is impressive for any business, but in particular, for one that gets the majority of its revenue from car sales. Operating earnings have

This article was written by

Josh Arnold profile picture
Leader of Timely Trader
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I've been covering financial markets for ten years, using a combination of technical and fundamental analysis to identify potential winners (and losers) early, particularly when it comes to growth stocks.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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