Asbury Automotive Group, Inc. (NYSE:ABG) Downgraded by JPMorgan

We recently compiled the list of the Analysts on Wall Street Lower Ratings for These 10 Stocks. In this article, we are going to take a look at where Asbury Automotive Group, Inc. (NYSE:ABG) stands against the other stocks that received a downgrade from Wall Street analysts. But first, we are going to take a look at what the markets are doing.

Amidst the anticipation surrounding pivotal economic indicators, European futures are on the ascent, signaling a cautious optimism among traders as they prepare for the release of crucial US inflation figures and the Federal Reserve's forthcoming monetary-policy decision. While Asian equities faced a downturn, European stock futures, particularly contracts on the Euro Stoxx 50 Index, exhibited a marginal uptick of 0.2%. Concurrently, treasuries in Asia recorded marginal gains, while Bloomberg's dollar index extended its streak of consecutive advancements.

With Wednesday's release of the US Consumer Price Index (CPI) data and the Fed's policy announcement looming, analysts remain vigilant, mindful of the potential resurgence in market volatility. Despite the backdrop of market uncertainty, Japanese financial institutions continue to command attention from investors, buoyed by their steadfast growth trajectory over the past year. Portfolio manager Junichi Inoue of Janus Henderson Investors underscores the undervalued status of these firms, attributing their appeal to the upward trend in dividend payments. Inoue strategically augmented exposure to Japanese financial entities, which now represent approximately 18.05% of his portfolio. Noteworthy investments include Sumitomo Mitsui Financial Group Inc. and Tokio Marine Holdings Inc. The Janus Henderson Japan Opportunities Fund, under Inoue's stewardship, has notably surpassed the MSCI Japan Index, delivering a commendable 15% return this year.

Meanwhile, in Hong Kong, the property market slump persists, deepening with each passing day and marking a sustained downturn reminiscent of the SARS crisis two decades ago. Bloomberg Intelligence data reveals that real estate values, encompassing both residential and commercial sectors, have collectively plummeted by at least HK$2.1 trillion ($270 billion) since 2019. Projections from UBS Group AG and CBRE Group Inc. forewarn of further declines, underscoring the formidable challenges confronting Hong Kong's real estate sector amidst enduring uncertainty.

Market analysts are viewing Indian Prime Minister Narendra Modi's decision to retain Nirmala Sitharaman as the country's finance minister as a positive indicator of policy consistency, according to reports from Goldman Sachs and Barclays. The reappointment of Sitharaman, alongside the return of other familiar figures from Modi's previous administration, is interpreted as a signal of continuity in government policies. Sitharaman's reappointment comes at a crucial juncture, as she faces the task of navigating fiscal demands within a coalition government framework, following the Bharatiya Janata Party's inability to secure a majority in the elections. Goldman emphasizes the potential benefits of maintaining unchanged ministry positions, suggesting that this continuity could bolster efforts towards implementing reforms. Similarly, Barclays highlights the importance of maintaining focus on infrastructure development and fiscal consolidation, expecting these initiatives to remain central to the government's agenda under Sitharaman's leadership.

Oil prices dipped on Tuesday as cautious investors awaited key U.S. and China Consumer Price Index (CPI) data, alongside the Federal Reserve's policy meeting outcome. According to Reuters, brent crude futures slipped by 13 cents to $81.50 per barrel, while U.S. West Texas Intermediate crude futures edged down by 7 cents to $77.67 per barrel. Monday saw a brief uptick in prices, spurred by optimism surrounding increased fuel demand during the Northern Hemisphere summer vacation season, but analysts warned that this surge might be short-lived, particularly with the looming possibility of higher interest rates. Market strategist Yeap Jun Rong from IG noted that sustained recovery in oil prices may require more conviction, especially with the broader trend leaning towards downside movement since April. Traders remained on edge ahead of China's macroeconomic data release, particularly concerning inflation figures. OANDA senior market analyst Kelvin Wong highlighted the potential impact of China's Producer Price Index (PPI) data on oil prices, expressing concerns over a further slowdown in deflationary trends and its implications for oil demand. Additionally, ongoing Saudi crude exports to China and higher refinery margins provided some support to oil prices. Analysts also pointed to the possibility of the United States increasing crude purchases for its petroleum reserve, particularly if WTI stays below $79 per barrel. Energy Secretary Jennifer Granholm indicated plans to replenish the Strategic Petroleum Reserve, targeting purchases at around $79 per barrel, as maintenance on the stockpile is scheduled for completion by year-end.

In this article we listed 10 companies that were downgraded by analysts and ranked them by the change in their market prices. Negative changes signal that the market participants agree with the analysts’ assessment.

06. Asbury Automotive Group, Inc. (NYSE:ABG)

Price Reaction after the Downgrade: -2.76(-1.18%)

On June 10, JPMorgan delivered a significant adjustment to its assessment of Asbury Automotive Group, Inc. (NYSE:ABG), downgrading the company's rating from an optimistic "Overweight" to a more neutral "Neutral" rating. This decision comes amid mounting concerns regarding the company's future performance and prevailing market conditions within the automotive retail sector. Specifically, JPMorgan revised its price target for Asbury Automotive Group, Inc. (NYSE:ABG) from $230 to $228 per share, reflecting a cautious outlook driven by potential headwinds in the automotive retail industry and macroeconomic factors impacting consumer spending on high-value items such as cars.

Asbury Automotive's stock has exhibited modest performance, hovering around $234.22, marking an approximate 4.1% increase since the commencement of the year. However, the stock encounters mixed sentiment among analysts, with current ratings comprising one buy, one hold, and one sell. The consensus price target for Asbury Automotive Group, Inc. (NYSE:ABG) stands at approximately $231.25, indicating a slight downside potential from its current market price.

The company unveiled its latest quarterly earnings report on April 25, 2024, revealing earnings per share (EPS) of $7.21, which fell short of the consensus estimate of $7.76. Despite this, Asbury Automotive Group, Inc. (NYSE:ABG) revenue for the quarter amounted to $4.20 billion, slightly below the anticipated $4.26 billion, though still reflecting a notable 17.3% year-over-year increase.

Overall, JPMorgan's downgrade suggests a more cautious stance towards Asbury Automotive Group, Inc. (NYSE:ABG), reflecting both broader industry challenges and specific performance metrics of the company. This adjustment underscores the importance of closely monitoring market dynamics and industry trends in navigating investment decisions within the automotive retail sector.

Bonhoeffer Capital Management stated the following regarding Asbury Automotive Group, Inc. (NYSE:ABG) in its fourth quarter 2023 investor letter:

“Our broadcast TV franchises, leasing, building products distributors and dealerships, plastic packaging, and roll-on roll-off (“RORO”) shipping fall into this category. One trend we find particularly compelling in these firms is growth creation through acquisitions, which provides synergies and operational leverage associated with vertical and horizontal consolidation. The increased cash flow from acquisitions and subsequent synergies are used to repay the debt and repurchase stock; and the process is repeated. This strategy’s effectiveness is dependent upon a spread between borrowing interest rates and the cash returns from the core business and acquisitions. Over the past 12 months, interest rates have been increasing, which has reduced the economics of this strategy; but a large spread still exists if assets can be purchased at the right price. Increasing interest rates have affected the returns on public LBO firms. Some firms have been reducing debt to reduce the impact of higher rates on earnings.

Asbury Automotive Group, Inc. (NYSE:ABG), a US-based automobile dealer group, a portfolio holding, is an example of a private LBO. Given Asbury’s current valuation of an 18% earnings yield and, more importantly, a five-year forward earnings yield of 38%, buybacks are accretive. Management has developed a long-term plan that includes acquisitions and operational leverage from internet sales and pre-paid service plans. The net income annual growth is expected to be 25% over the next two years based upon management’s plan. Holding the current modest 6 times multiple of earnings constant, the rate of earnings growth implies a 25% total return…” (Click here to read the full text)

Overall, ABG ranks 6th among the stocks recently downgraded by Wall Street analysts. You can visit Analysts on Wall Street Lower Ratings for These 10 Stocks to see the other stocks that reacted to analyst downgrades. While we acknowledge the potential of ABG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ABG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.