Penske Earnings: Solid Third Quarter Despite Hail Damage and Used-Vehicle Headwinds

Narrow-moat Penske Automotive Group’s third-quarter diluted EPS fell 15% year over year to $3.92, missing the $4.04 Refinitiv consensus. Results include what we estimate as a $0.06 EPS hit for a Texas hailstorm destroying 750 vehicles in September and a $0.02 foreign-exchange tailwind. We have increased our fair value estimate by $2 per share to $130 on the time value of money. The truck segment posted all-time record pretax income on higher new- and used-truck profitability. We see the company well positioned for further organic and acquisition growth—or a 2024 recession—due to its strong balance sheet, with net leverage of only 1.0 times EBITDA and credit line liquidity of $1.4 billion. The board has increased the quarterly dividend four times this year, with the most recent move a 9.7% rise announced Oct. 18 to $0.79 per share. We see Penske as the best dealer for investors most concerned about dealers suffering from the United Auto Workers strike because the Detroit Three only constitute about 1% of the firm’s retail automotive revenue.