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Auto Retail & Whole Sales Industry Near-Term Prospects Bright

Sanjoy De

The performance of automotive sector depends upon its retail and wholesale network. Through dealership and retail chains, companies in the Zacks Auto Retail and Wholesale industry carry out several tasks. These include sale of new and used vehicles and light trucks,  sale of auto parts, execution of repair and maintenance services, and arrangement of vehicle financing.

The industry comprises prominent companies such as AutoNation, Inc. (AN), Penske Automotive Group, Inc. (PAG), Automotive Group, Inc. (ABG), Lithia Motors, Inc. (LAD), and others.

Let’s take a look at the industry’s three major themes:

  • The Auto Retail & Whole Sales industry is witnessing considerable changes in the operating environment. Wide usage of technology, rapid digitalization and shift toward electric and self-driving vehicles have made it necessary for the industry players to reorient their business model.

  • The space has some distinct advantages in the form of rising consumer disposable income, a better employment scenario and easy availability of credit. It is anticipated that industry revenues with an increase in the number of consumers entering the market.

  • High interest rate is an overhang on the industry, particularly on independent dealers. Added to this, concerns pertaining to tariffs have worsened the situation.

Zacks Industry Rank Indicates Solid Prospects

The Zacks Auto Retail & Wholesale industry is a nine-stock group within the broader Zacks Auto sector. The industry currently carries a Zacks Industry Rank #23, which places it in the top 9% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates strong near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate.

Before we present a few Auto Retail & Wholesale stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Underperforms S&P 500 But Outperforms Sector

Over the past year, the Auto Retail & Wholesale industry has underperformed the Zacks S&P 500 composite but outperformed its own sector.

Over this period, the industry has gained 3.2% against the sector’s decline of 13.7%. The Zacks S&P 500 composite has increased 11.3% in the same time frame.

One-Year Price Performance



Industry’s Current Valuation

On the basis of trailing 12-month enterprise value-to EBITDA (EV/EBITDA), which is a commonly used multiple for valuing auto stocks, the industry is currently trading at 7.01X compared with the S&P 500’s 11.29X and the sector’s trailing-12-month EV/EBITDA of 9.21X.

Over the past five years, the industry has traded as high as 9.82X, as low as 6.25X and at a median of 8.02X, as the chart below shows.

Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio


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Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio



Bottom Line

Analysis shows that there are certain bright spots such as a decent industry rank and cheap valuation for the Zacks Auto Retail & Wholesale industry. Also, a robust economy and conducive labor market conditions are positives.

However, embracing radical changes such as occasional launch of new models, and introduction of electric and autonomous vehicles is a challenge.

A couple of stocks in the Auto Retail & Wholesale industry space currently carrying a Zacks Rank #1 (Strong Buy) are Group 1 Automotive, Inc. (GPI) and Lithia Motors . You can see the complete list of today’s Zacks #1 Rank stocks here.

Group 1 Automotive: The Zacks Consensus Estimate for current-year earnings of this company has increased 6% to $9.68 per share over the past 30 days.

Price and Consensus: GPI



Lithia Motors: The Zacks Consensus Estimate for current-year earnings of this company has increased 7% to $10.96 per share over the past 30 days.

Price and Consensus: LAD



Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

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Penske Automotive Group, Inc. (PAG) : Free Stock Analysis Report
 
Lithia Motors, Inc. (LAD) : Free Stock Analysis Report
 
Group 1 Automotive, Inc. (GPI) : Free Stock Analysis Report
 
AutoNation, Inc. (AN) : Free Stock Analysis Report
 
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Zacks Investment Research