Penske Earnings: Agency Model Change Does Not Seem To Be Hurting Our Investment Thesis

Penske's first-quarter diluted EPS of $4.31 beat the $4.13 Refinitiv consensus and fell 9.5% year over year. Foreign exchange took $0.11 from the figure as well as $294.2 million from sales. We are not changing our fair value estimate. Same store retail automotive revenue rose 1.9% (up 6% excluding foreign exchange) on good growth from new vehicles and service. The 39-store truck dealer segment is enjoying stellar demand for new Class 8 trucks and a 12% rise in new truck gross profit. Further, 17% profit growth in truck service offset a 66% decline in used truck gross profit. Penske raised its dividend in January by 7% and spent $110.2 million on buybacks in the quarter. The board increased the repurchase authorization in February by $250 million, leaving $214.1 million remaining as of March 31. With a leverage ratio of only 0.9 times and the company recently increasing its U.S. credit line by $400 million to $1.2 billion, we see Penske well set up for acquisitions if it finds the right bargain and for continued buybacks and dividend growth.