On Friday, Asbury (NYSE:ABG) Automotive Group (NYSE:ABG) experienced a change in stock rating as CFRA downgraded the company from Buy to Hold, despite increasing the price target to $260 from $245. This adjustment comes after the company reported second-quarter earnings per share (EPS) of $6.40, which did not meet the expected $7.33 consensus.
The downgrade is attributed to a combination of factors, including lower-than-anticipated sales and margins, as well as downward revisions in earnings estimates. Asbury's Q2 performance showed a 28% decline in EPS from the previous year's $8.95, and revenue growth was slightly below expectations at $4.25 billion, a $70 million shortfall from the consensus.
CFRA's revised price target is based on a 2025 price-to-earnings (P/E) ratio of 8.7 times, which is below Asbury's 10-year average forward P/E of 9.6 times. The firm has adjusted its adjusted EPS forecast to $27.15 from $30.60 for 2024, and to $30.00 from $34.80 for 2025. These revisions reflect the firm's new valuation of Asbury's stock.
Despite a 13% rise in revenue, attributed mainly to the acquisition of Koons Automotive, the company's gross margin has contracted to 17.2%, which is 20 basis points below the consensus. The acquisition was significant, as Koons Automotive is the ninth largest privately-owned dealership in the U.S., contributing over $3 billion in annual revenue. However, same-store revenue growth was recorded at only 5%.
The report also notes that Asbury Automotive's level of share repurchases in the second quarter was considerably lower than in the first quarter. CFRA suggests that there are currently more attractive opportunities within the auto retail space, which has influenced their decision to lower the stock's rating to Hold.
In other recent news, Asbury Automotive Group has been grappling with the after-effects of a cyber-attack on its vendor, CDK Global (NASDAQ:CDK). The breach has impacted several services crucial to Asbury's operations, including sales, service, inventory, customer relationship management, and accounting. The full extent of the attack's impact on Asbury's business operations remains uncertain, and it is unclear whether customer data was compromised.
In response to these challenges, Asbury's stores have implemented contingency plans to maintain operational status. Locations such as Koons Automotive in Maryland and Virginia, and the online vehicle purchasing platform Clicklane, have experienced minimal disruption due to their non-reliance on CDK's compromised systems.
In other developments, Asbury Automotive Group has expanded its share repurchase program to $400 million, indicating confidence in its long-term business prospects. This expansion adds an additional $246 million to the existing program. In 2024 alone, Asbury repurchased approximately 281,000 shares, amounting to about $59 million.
Moreover, the company has announced the upcoming retirement of its Chief Legal Officer, George A. Villasana, who will transition into a Special Advisor role by June 30, 2024, before his final retirement in March 2025. Asbury is currently seeking a new CLO, considering both internal and external candidates.
InvestingPro Insights
Asbury Automotive Group (NYSE:ABG) has been actively engaging in share buybacks, a sign of management's confidence in the company's value, as highlighted by one of the InvestingPro Tips. This aligns with CFRA's observation of the company's stock repurchase activities, although they noted a decrease in the second quarter.
Furthermore, the company's strong performance over the last month, with a 15.89% price total return, and impressive returns over longer periods such as the last three months (26.38%) and the last five years, suggests resilience and potential for long-term growth.
InvestingPro Data shows Asbury's market capitalization stands at $4.74 billion, with a P/E ratio of 8.26, marginally lower than the adjusted P/E ratio for the last twelve months as of Q1 2024, which is 8.17. These figures may offer some context to CFRA's updated price target, which is based on a forward P/E ratio. Moreover, the company's revenue growth for the last twelve months as of Q1 2024 was 2.1%, and it saw a quarterly revenue growth of 17.28% in Q1 2024, indicating a solid financial trajectory despite the missed earnings expectations for the second quarter.
For readers looking to delve deeper into Asbury Automotive's performance and future prospects, there are additional InvestingPro Tips available, providing a more comprehensive analysis of the company's financial health and market position.
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