Analyst Note| David Whiston, CFA, CPA, CFE |
Group 1’s second quarter was a quarterly record and within the results the company signaled in a July 8 release, as we discussed in our note that day. Adjusted diluted EPS of $10.31 beat the Refinitiv consensus of $7.13 and more than tripled from second-quarter 2019’s $2.83. We are raising our fair value estimate to $184 from $162. The change is from the time value of money, higher revenue growth, and a 30-basis-point increase in our midcycle operating margin, including floorplan interest, to 3.5%. We made the latter change to reflect our expectation of better overhead cost leveraging long term due to benefits from the company’s AcceleRide omnichannel platform and the chance that inventories will be lower than prepandemic levels after the semiconductor shortage ends, which should enable better pricing power long term.