4. Asbury Automotive Group, Inc. (NYSE:ABG)
Number of Hedge Fund Holders: 34
P/E Ratio as of January 19: 5.25
Asbury Automotive Group, Inc. (NYSE:ABG) is a Georgia-based automotive retailer that deals in new and used vehicles, vehicle repair and maintenance services, replacement parts, and collision repair services. Asbury Automotive Group, Inc. (NYSE:ABG) is one of the most undervalued stocks in the auto sector according to hedge funds.
On October 6, JPMorgan analyst Rajat Gupta maintained a Neutral rating on Asbury Automotive Group, Inc. (NYSE:ABG) and lowered the firm’s price target on the shares to $185 from $205. The analyst noted the setup for franchise auto dealers into Q3 earnings is the most negative he has encountered since the pandemic, and he cut back estimates for 2023 “materially” to reflect a mild recession and expects a new normal by 2025.
According to Insider Monkey’s data, 34 hedge funds were long Asbury Automotive Group, Inc. (NYSE:ABG) at the end of Q3 2022, compared to 27 funds in the prior quarter. Lauren Taylor Wolfe’s Impactive Capital is the largest stakeholder of the company, with 2.20 million shares worth $332.85 million.
Bonhoeffer Capital Management made the following comment about Asbury Automotive Group, Inc. (NYSE:ABG) in its Q3 2022 investor letter:
“One of our holdings in the distribution theme is Asbury Automotive Group, Inc. (NYSE:ABG), an automobile dealership firm. Asbury’s growth model is through same-store sales growth (4% per year), internet distribution (10% per year), and synergistic M&A (5% per year). These are enhanced by opportunistic operational leverage from scale and share repurchases (5% annual growth). Over the past 10 years, Asbury’s net income margins are up 120% with a 5x increase in revenues. These factors should lead to about a 20% EPS growth going forward. Ashtead has had 19% and 31% EPS growth over the past five and 10 years, respectively.
As can be seen below, a large portion of future growth is based upon the growth of internet sales. Both Asbury and Lithia have internet strategies which capture a younger demographic who do not visit dealerships with the same frequency as older folks. Asbury, through its online platform Clicklane, has found internet purchasers have very little overlap with existing customers; 95% are new customers. Asbury’s strategy is to target customers who are within 20 miles of an existing Asbury location vs. online-only competitors (like Carvana) and Lithia. Asbury has had a per-store growth rate of 67% over the last year and only sells cars online in about 60% of its current footprint. This growth rate will decline going forward as the markets mature, but it will be bolstered as Clicklane is rolled out to the remaining 40% of Asbury’s footprint…” (Click here to read the full text)
