Analyst Note| David Whiston, CFA, CPA, CFE |
Penske Automotive Group reported all-time record quarterly results with second-quarter adjusted diluted EPS from continuing operations of $4.47 beating the Refinitiv consensus of $2.91. As explained in our July 15 note, the company announced preliminary results of EPS of over $4 and pretax income exceeding $450 million, both of which held true. We said on July 15 that we expected to make a modest fair value increase, but with 2021 full-year results looking to be better than we thought on July 15, we are raising our fair value estimate to $83 from $70. The change is from time value of money, more equity income, an increase in revenue through 2025, a lower cost of debt, and better overhead cost leveraging than previously modeled in light of how 2021 is progressing. We model total revenue across 2021-25 of $146 billion, 5.1% higher than in our previous model. This change reflects higher growth in all areas of the company and a slight increase in our forecast U.S. industry new light vehicle sales for each of 2021-24. We now expect 2021 sales about in the mid-16 million range compared with low-16 million previously. We are assuming the semiconductor shortage starts to improve in the third quarter, but we don’t see it ending this year.