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Penske Automotive Group, Inc. (PAG), AutoNation, Inc. (AN), CarMax, Inc (KMX): Shopping For An Auto Dealership

Penske Automotive Group, Inc. (NYSE:PAG)Auto sales have already risen in 2013, and automakers expect the high demand to continue, reports the Tampa Bay Business Journal. Recent results from auto dealers Penske Automotive Group, Inc. (NYSE:PAG)AutoNation, Inc. (NYSE:AN), and most recently CarMax, Inc (NYSE:KMX) could indicate the satisfaction of pent up auto demand. Cars can be expensive, especially new ones, so it can pay to shop around. The same concept holds for auto dealership stocks. CarMax, Inc (NYSE:KMX) looks pricier than Penske Automotive Group, Inc. (NYSE:PAG) and AutoNation, Inc. (NYSE:AN), but CarMax also posted the strongest first quarter results.

Pent Up Auto Demand

Pent up auto demand may have fueled recent auto sales. Many drivers couldn’t afford new cars in the aftermath of the severe 2008 recession. Consumers kept driving older cars, and the average age of the cars on United States roads rose. Ben Klayman, at Reuters, reports that the average car is now 11 years old. Well maintained cars can last a long time, but they don’t last forever. Automakers and auto dealers expected a surge in car sales when drivers finally replaced these older vehicles, and recent car sales figures support this prediction. Joseph Szczesny, at the Detroit Bureau, reported that major automakers reported strong sales in May 2013.

Used Cars

Rising new car sales could result in fewer used car sales, but these auto dealers still sold more used cars recently. CarMax, Inc (NYSE:KMX) reported that used vehicles provided 81.6% of its sales this quarter, and used vehicle sales increased 23.4% over the first quarter of 2012. Penske Automotive Group, Inc. (NYSE:PAG) reported that used vehicle sales provided 29.6% of its revenue for the quarter, a 7.4% increase from the quarter last year. Retail used vehicle sales provided 22.0% of AutoNation, Inc. (NYSE:AN)’s revenue for the quarter, a 12.2% increase from the quarter last year. AutoNation also reports its total used vehicle sales, but this figure includes wholesale revenue as well. CarMax, Inc (NYSE:KMX) and Penske Automotive Group, Inc. (NYSE:PAG) report wholesale revenue separately, so for comparison purposes AutoNation, Inc. (NYSE:AN)’s retail used vehicle sales figure could be more helpful.

Overall Growth

Pent up auto demand looks like it helped all three auto dealers in the first quarter of 2013. CarMax reported 19.3% sales growth and 21.5% income growth for the quarter, which was the strongest overall result. Penske Automotive Group, Inc. (NYSE:PAG) reported the highest income growth for the quarter at 23.2%, along with the lowest sales growth at 7.7%. AutoNation, Inc. (NYSE:AN) reported a more balanced 12% sales growth and 13.7% income growth for the quarter.

Financial Comparison

Yahoo! Finance lists a forward P/E of 19 and a 1.64 PEG ratio for CarMax, Inc (NYSE:KMX). CarMax looks like the clear growth stock in this group, but it’s relatively expensive. Penske has a forward P/E of 10 and a PEG ratio of 0.72, while AutoNation has a forward P/E of 13 and a PEG ratio of 0.76. Penske offers investors a 1.9% dividend, while the other auto dealers have bought back stock recently. Penske’s weighted average share count rose by 0.1% over the last four quarters. AutoNation, Inc. (NYSE:AN)’s weighted average share count has dropped 7.6% in the last four quarters, while this figure declined 1.4% for CarMax, Inc (NYSE:KMX).

Takeaway

Penske may be the best deal in the group. Pent up auto demand could help all three auto dealers, so a value priced stock could still have decent growth prospects. Penske Automotive Group, Inc. (NYSE:PAG) won on income growth last quarter, and it also has the lowest forward P/E. Penske has a lower PEG ratio than its peers, which indicates future potential. AutoNation’s share buyback looks more attractive than Penske’s dividend, but Penske could still be the most attractive overall pick because of its price.

The article Shopping For An Auto Dealership originally appeared on Fool.com and is written by Eric Novinson.

Eric Novinson has no position in any stocks mentioned. The Motley Fool recommends CarMax. Eric is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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