The U.S. auto industry has shown a robust recovery, underscoring consumers' solid demand for new vehicles. Amid this, auto dealer stocks like Group 1 Automotive, Inc. (GPI), Copart, Inc. (CPRT), and Cars.com Inc. (CARS) have gained much-deserved bullish attention.
The U.S. auto dealership industry is finally recovering from the inventory pressures that have troubled the sector. The Cox Automotive Dealer Sentiment Index for the second quarter stood at 45, up from 43 in the first quarter. Although macroeconomic concerns plague the industry, the new vehicle environment has improved.
J.D. Power and GlobalData forecasted U.S. new vehicle sales to reach 1,354,600 units in August, reflecting a 15.4% increase year-over-year. Moreover, consumers are estimated to spend $47.80 billion on new vehicles for August, the highest on record for the month and 10.5% higher than last year.
Investments in new technologies and the rising prevalence of automotive dealers due to consumers’ inclination toward hassle-free car buying are propelling the prospects of the U.S. auto dealership market. The market is expected to reach $257.30 billion by 2028, registering a CAGR of above 4%.
Let’s deep dive into the fundamentals of the Auto Dealers & Rentals stocks mentioned above to understand the investment opportunity better, starting with the third.
Stock #3: Group 1 Automotive, Inc. (GPI)
GPI operates in the automotive retail sector in the United States and the United Kingdom. The company sells new and used vehicles, parts, and insurance contracts while providing financing and automotive maintenance services.
On August 2, GPI announced an increase in its common stock repurchase authorization by $153.7 million to $250 million. The company also declared a quarterly dividend of $0.45 dividend per share, payable to shareholders on September 15, 2023.
The company’s President and Chief Executive Officer, Daryl Kenningham, stated, "Once again our strong cash flow and balance sheet enable the Company to deploy capital and reward stockholders. Continuing to grow our business while also returning capital to our stockholders remain our top capital allocation priorities."
Earlier in June, GPI announced the acquisition of Beck & Masten Kia, a dealership in the Houston metropolitan area. This is expected to expand the company's footprint to 15 brands and 18 dealerships in the Houston market. The dealership is expected to generate $85 million in annual revenues.
For the fiscal second quarter that ended June 30, 2023, GPI’s total revenues increased 10% year-over-year to $4.56 billion, while its gross profit increased marginally year-over-year to $775.50 million. Its income from operations stood at $270.80 million. Also, its adjusted earnings per common share from continuing operations stood at $ $11.73.
Street expects GPI’s revenue to increase 6% year-over-year in the current quarter (ending September 2023) to $4.41 billion. For the fiscal year 2023, its revenue is projected to reach $17.45 billion, registering an increase of 7.6% from the prior year. It topped consensus EPS estimates in each of the trailing four quarters.
Over the past year, GPI’s shares have gained 55.4%, closing the last trading session at $270.74. It has gained 50.1% year-to-date.
GPI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value. Within the Auto Dealers & Rentals industry, it is ranked #6. Click here to view GPI’s ratings for Growth, Momentum, Stability, Sentiment, and Quality.
Stock #2: Copart, Inc. (CPRT)
CPRT provides online vehicle auctions and remarketing services globally, connecting various stakeholders, including insurers, banks, dealers, and the public. Their services encompass vehicle processing, inspection, reporting, and parts sales, facilitating transactions for licensed dismantlers, dealers, and the public.
On August 5, CPRT announced the approval for a two-for-one stock split, with additional shares distributed to stockholders. This split will double the number of outstanding common shares from 480 million to 960 million and won't require stockholders to exchange existing certificates. This has the potential to improve the company’s trading liquidity.
For the fiscal third quarter that ended April 30, 2023, CPRT’s total service revenues and vehicle sales increased 8.7% from year-ago value to $1.02 billion, while its gross profit increased 10.8% year-over-year to $483.43 million. The company’s non-GAAP net income came in at $346.06 million and $0.72 per diluted common share, representing an increase of 22.9% and 24.1%, respectively, from the prior-year quarter.
The consensus revenue estimate of $962.78 million for the fiscal fourth quarter (ending July 2023) represents a 9% increase year-over-year. The consensus EPS estimate of $0.32 for the current quarter indicates a 14.8% improvement year-over-year. The company has an impressive surprise history, surpassing the consensus revenue estimates in each of the trailing four quarters.
The stock has gained 54.6% over the past year and 47.7% year-to-date to close the last trading session at $44.98.
CPRT’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
CPRT also has an A grade for Quality and a B for Stability and Sentiment. It is ranked #4 out of 21 stocks in the same industry. Click here to see the other ratings for Growth, Value, and Momentum.
Stock #1: Cars.com Inc. (CARS)
CARS operates as a digital marketplace, connecting car shoppers with sellers and offering tools for financing, website creation, and advertising solutions. With 19,506 dealer customers across 50 states, it serves local dealers, OEMs, and national advertisers.
CARS’ total revenue increased 3.3% year-over-year to $168.18 million for the fiscal second quarter ended June 30, 2023. Its operating income stood at $12.33 million, while net income came in at $94.13 million, registering a significant improvement from year-ago value. CARS’ earnings per share also improved substantially to $1.37.
The company expects its full-year revenue guidance range between 4% to 6% year-over-year growth, raising the midpoint of revenue guidance. CARS expects its margins to improve over the year and exit the year with fourth-quarter adjusted EBITDA margins approaching 30%.
For the fourth quarter ending December 2023, CARS’ EPS is expected to increase 62.1% year-over-year to $0.54. Its revenue for the same quarter is projected to come in at $177.49 million, registering an increase of 5.5% from the prior year's value.
The stock has gained 52.7% over the past year and 36.1% year-to-date to close the last trading session at $18.74.
CARS’ robust prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
CARS also has a B grade for Value and Sentiment. It is ranked #2 out of 21 stocks in the same industry. Click here to see the other ratings of CARS for Growth, Momentum, Stability, and Quality.
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CPRT shares were trading at $44.95 per share on Tuesday afternoon, down $0.03 (-0.07%). Year-to-date, CPRT has gained 47.64%, versus a 18.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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