On Wednesday, Stephens initiated coverage on Kar Auction Services Inc. (NYSE: NYSE:KAR) with an Equal Weight stock rating and a $20 price target. The decision is based on a multiple of 10 times the firm's projected 2025 EBITDA. The stock, currently trading at $20.56, sits near its 52-week high of $20.85 and has delivered an impressive 41.79% return over the past year.
According to InvestingPro analysis, the company is currently trading slightly above its calculated Fair Value. Stephens notes that Kar Auction, which holds a dominant market share of 70% to 75% in the off-lease auction market, may experience cyclical challenges throughout 2025 and potentially face more significant secular hurdles beyond that year.
According to Stephens, Kar Auction's lease returns are expected to decline in 2025, with a forecasted stabilization towards the year's end. However, the firm points out that Kar Auction seems to lack the level of innovation found in competitors like ACVA, especially within the dealer-to-dealer segment.
Kar Auction has, however, successfully developed its inventory floor plan business, Automotive Finance Corporation (AFC), which is responsible for over half of the company's EBITDA. Stephens acknowledges AFC as a well-constructed business with a defensible position, despite offering what is essentially a commodity product.
The firm attributes this to the necessity of having a local and physical presence, coupled with the short-term nature of the business cycle and the complex nature of the customer base.
Despite the strengths observed in AFC, Stephens expresses concerns regarding Kar Auction's finance customers, who are generally smaller and cater to lower-income consumers. These customers are currently facing significant competitive and macroeconomic pressures.
Furthermore, the firm suggests that investors typically assign a lower value to finance businesses compared to traditional operating cash flow streams, which could impact Kar Auction's valuation.
In other recent news, OPENLANE, Inc. has announced the forthcoming departure of its CFO, Brad S. Lakhia, effective March 1, 2025. The company has yet to name a successor, but an agreement has been reached with Mr. Lakhia to waive his obligation to repay his $500,000 sign-on bonus, contingent upon his continued service until his departure date.
OPENLANE recently reported strong financial results for the third quarter of 2024. CEO Peter Kelly and CFO Brad Lakhia highlighted the successful execution of strategic initiatives during the earnings call. The company's GAAP and non-GAAP financial measures, available on OPENLANE's Investor Relations website, were presented to offer investors detailed insights into the company's performance.
In other developments, Innoviz Technologies Ltd., a motor vehicle parts and accessories company, has disclosed that its Annual General Meeting of Shareholders will take place on December 17, 2024. The details of the meeting were confirmed by CFO Eldar Cegla. These recent developments provide investors with valuable insights into the operations and financial health of both OPENLANE and Innoviz Technologies.
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