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Penske Automotive Group: Getting Back On Track

Mar. 04, 2021 4:16 PM ETPenske Automotive Group, Inc. (PAG)2 Comments
Gary Gambino profile picture
Gary Gambino


  • Penske Automotive made some impressive cuts to cost and debt during the pandemic.
  • Penske's dividend suspension only lasted two quarters and is once again paying a growing dividend each quarter.
  • The company has ambitious expansion plans for used car supercenters.
  • Despite the huge run over the past year, the share price has lagged competitors and the stock is still a good value.

Speed Record For Dividend Reinstatement

I last covered Penske Automotive Group (NYSE:PAG) in June 2020 after it announced it would suspend the dividend to conserve liquidity in the pandemic. At that time I mentioned that I sold the stock (after it had doubled from the March 2020 crash lows) although I rated it Neutral in the article. This turned out to be my biggest trading mistake of 2020 as the stock has gained over 63% since publication. While I was able to replace the lost dividend income, I sacrificed a much larger total return. I estimate my total portfolio would be about 1.2% higher value today if I had not made that trade. For more discussion about the perils of chasing income, please see my most-read article on Seeking Alpha, "Don't Sell Potential 10-Baggers Just To Chase Income".

It turns out that the dividend cut was exactly what Penske needed to help stabilize the balance sheet. Long-term debt has fallen to $1.60 billion (1.7 times EBITDA) at the end of 2020 from $2.26 billion (2.7 times EBITDA) in 2019. Additionally, Floor Plan debt also decreased to $3.1 billion from $4.0 billion. Floor Plan interest expense went down by a much larger percentage due to the decline in short-term interest rates. 2020 Floor Plan interest was $46.3 million (1.5% interest rate) compared to $84.5 million in 2019 (2.1% interest rate). Finally, the company was able to cut SG&A expenses by more than the drop in revenues, leading to improved operating margins. Looking forward, cost will come back up as all dealerships reopen fully and sales increase. From the earnings call, however, Penske still expects the longer term SG&A run rate to be in the 73% - 74% range, about 3 to 4 percentage points lower than pre-2020 historical.

Penske SG&A Costs

Source: Penske 4Q

This article was written by

Gary Gambino profile picture
I am a Chemical Engineer by training and have an MBA with concentrations in Finance and Operations Management. I retired early after 22 years in the energy industry with roles in engineering, planning, and financial analysis. I have managed my own portfolio since 1998 and have met my goal to match the S+P 500 return over the long term with lower volatility and higher income yield. I plan to focus my writing on positions I already hold or am considering changing, however my bias is toward long-term holding unless there is a very compelling reason to sell.

Analyst’s Disclosure: I am/we are long PAG. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (2)

Nice article, good find. I notice on fastgraphs they indicate that earnings jump to $16.80 in 2023. That's from 7.95 in 2022. Got any idea what that's all about?
Mr. Due Diligence profile picture
@Ruble Noon
Check out the number of analysts covering the latest period... maybe only a single analyst has Made an estimation with large deviations
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