On Tuesday, CFRA adjusted its stance on Asbury (NYSE:ABG) Automotive Group (NYSE:ABG) shares, reducing the 12-month price target from $260.00 to $230.00 while maintaining a Hold rating. The revision reflects a new target price based on a price-to-earnings (P/E) ratio of 8.0x for the year 2025, which is below Asbury's 10-year average forward P/E of 9.4x.
The reduced price target accompanies a lowered earnings per share (EPS) forecast for the upcoming years, with the estimated adjusted EPS now set at $26.30 for 2024, down from $27.15, and $28.65 for 2025, decreased from $30.00.
Asbury Automotive reported third-quarter earnings per share of $6.35, a 25% decrease from $8.12 in the same period last year, and below the consensus estimate of $6.57. This shortfall was attributed to sales and margins that did not meet expectations.
Although revenue increased by 16% to $4.24 billion, it fell $70 million short of the consensus. Moreover, the gross margin contracted by 140 basis points to 16.9%, which was 20 basis points below the consensus forecast.
Despite the current valuation leading to a Hold rating for Asbury Automotive, CFRA's outlook on the Auto Retail sub-industry has recently turned positive. Analysts predict an improvement in auto sales and margins in the upcoming quarters, which could be supported by a decline in interest rates.
The affordability of new vehicles in the U.S. has reached its best level in three years, and with the anticipation of lower interest rates, there is an expectation that this will serve as a tailwind after several quarters marked by increasing inventories and rates.
InvestingPro Insights
To complement CFRA's analysis of Asbury Automotive Group (NYSE:ABG), recent data from InvestingPro offers additional perspective on the company's financial position and market performance. Despite the reduced price target and lowered EPS forecasts, ABG maintains a relatively low P/E ratio of 7.61 for the last twelve months as of Q2 2024, suggesting the stock may be undervalued compared to its earnings.
InvestingPro Tips highlight that Asbury Automotive Group has been profitable over the last twelve months and analysts predict continued profitability this year. This aligns with CFRA's expectation of improved auto sales and margins in upcoming quarters. However, it's worth noting that the company operates with a significant debt burden, which could impact its financial flexibility in a changing interest rate environment.
The company's revenue growth of 13.46% in Q2 2024 compared to the same quarter last year indicates strong sales performance, even though it fell short of consensus estimates. This growth, coupled with a gross profit margin of 17.75% for the last twelve months, reflects the company's ability to generate earnings despite challenging market conditions.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide valuable insights into Asbury Automotive Group's financial health and market position.
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