Don't Forget About These Auto Dealers
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As the Big Three auto companies have gotten all the attention with stronger auto sales, I think it's important for investors to look for companies under the radar that also benefit. These three auto retailers sell a diverse group of vehicle brands and are able to capitalize on strong car sales across the board. The automotive retail sector is highly fragmented and there's plenty of room for growth via acquisitions both domestically and internationally.
Group 1 should be your number one
Group 1 Automotive (NYSE: GPI) is the fourth-largest dealership group in the United States and has expanded in the United Kingdom and Brazil. The company owns and operates a total of 139 automotive dealerships, 178 franchises, and 35 collision centers serving 35 vehicle brands.
In the first quarter of this year, revenue grew 18% to nearly $2.0 billion and adjusted net income grew 26.5% to $29.2 million. This was the best quarter in the company's history. New vehicle sales grew 18.5%, while used vehicle sales increased 12% in the first quarter. The fastest-growing division for Group 1 is its finance and insurance division, which grew revenue 22.6%.
In looking forward, I like that the company is expanding overseas. Of the company's total revenue, only 8.5% came from the U.K. and 4.5% from Brazil. There are considerable opportunities for expansion, particularly in Brazil, where the auto dealership market is highly fragmented.
The company is also making significant improvements in cutting costs. By the end of this year, the company's accounting systems will be consolidated. The company is also integrating into a single customer relationship management system and a service call center, both of which will become operational this year. All three initiatives should result in significant cost savings and boost the bottom line.
Bruton Smith knows the car business
Sonic Automotive (NYSE: SAH) is run by Bruton Smith. He has been in the automotive retailing sector since 1966 and also owns NASCAR racetracks through his Speedway Motorsports. The company operates over 100 dealerships across 14 states selling 25 different vehicle brands.
In the first quarter of this year, revenue was up 8% to a little over $2 billion. New car sales were up 11.7% and used car sales rose 4.8%. Car sales for the quarter were the best in the company's history. This quarter marked the 14th consecutive quarter of revenue growth without an acquisition. Earnings per share grew 14%.
In looking forward, Sonic still has $137 million left in its share repurchase program. The company just purchased two auto dealerships in Colorado. I like the acquisitions because one of the dealerships is a BMW retailer. In the first quarter, BMW sales were the strongest for the company and beat the other brands with a rise of 25%. By having 25 different brands in its portfolio, Sonic can see which brands are performing the best and look to expand its dealership network with that brand.
Don't forget Roger Penske
Penske Automotive Group (NYSE: PAG) is the second-largest publicly traded automobile retailer. The company owns and operates 174 dealerships in the U.S. and 168 internationally. Chairman and CEO Roger Penske is a legend in the automobile industry and is known for his Penske Racing teams.
The first quarter of this year was also a record for Penske Automotive. Total vehicle sales rose 9.9% and total revenue increased 7.7% to $3.4 billion. Earnings per share increased 14.5% to $0.63 per share. Penske Automotive repurchased 410,000 shares during the quarter. Finance and insurance revenue came in strong, rising 11.5%.
In looking forward, what I really like about Penske Automotive is the scale of the company in the international market. The company has operations in the United Kingdom, Germany and Italy. Roger Penske says he is targeting revenue growth of more than 10% this year through a combination of increased sales and acquisitions. The company is looking at acquiring more dealerships in the U.S., Western Europe and is keeping an eye on Brazil and China. All of this is good news for shareholders in Penske Automotive.
The strengthening economy is good news for this automotive retailers. Since the average car on the road is over 10 years old, look for consumers to continue upgrading their vehicles. These three companies are well run and are good long-term bets on the automotive sector.
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Mark Yagalla has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!