We expect the US Dept of Commerce to release a report this weekend asserting that automotive-related imports are a national security threat, thus authorizing the Executive branch to enact tariffs without Congressional approval under the Section 232 statute. We think actual tariff enaction is unlikely given widespread opposition from U.S. constituencies (Auto Dealers are politically powerful; even the UAW has not offered its endorsement). Nevertheless, general uncertainty during the 90-day post-report evaluation period could have stock implications: Slightly negative for U.S. Suppliers, negative for U.S. Dealers and Aftermarket Retailers, negative for non-U.S. OEMs, and neutral for U.S. OEMs.
Search Coverage List, Models & Reports
Search Results1-10 out of 37
Dealer earnings start on 2/5; however, AN does not report until 2/22. The only other time that it reported even remotely this late was in Q4 09 on 2/11. Hard to tell what this means, though a later date would give time to stabilize operations, finish CEO search, or switch to Non-GAAP.
Once a quarter, we comb through corporate filings and summarize the most noteworthy datapoints. At a high level, developments during the quarter reinforced our view that investors should be Underweight Autos and Auto Parts, Underweight Dealers, and Overweight a relatively small selection of companies that fall into the Auto 2.0 category. In our view the U.S. Auto Cycle is in its 8th or 9th inning, with looming pressures on vehicle affordability. China is experiencing its first real Auto Industry downturn, and we are not convinced that the Central Government will step in to specifically prop up Autos. Europe also faces a number of challenges: These include potential trade risks (7% of Europe produced vehicles are exported to the U.S.), political risks (Brexit), and regulatory risks (vehicles more expensive to produce, at the same time that pricing has become more challenged).
This AM (10/30/2018), AN reported total rev growth of -1.5% missing Cons of +2.3% and our -0.1%. EPS of $1.24 met Cons but beat our $1.30 helped by asset sales and taxes. SG&A came in worse than expected stoking concerns on AN’s elevated level of spend in today’s SAAR environment. AN announced a 7% stake in the #2 online auto dealer. AN -3% vs S&P +1%.
We are decreasing estimates and rolling our price target to a year-end 2019 value of $37 (was CY 18 of $46). Our price target uses a 7.5x EV/Adj. EBTITDA, in-line with both peers and where shares currently trade today.
Our analysis of vehicle affordability and price elasticity suggest that the U.S. market could face a 1- million-unit decline, even without a recession. Partly due to changes in China government policy, this market may no longer be as consistent a source of growth and profitability. Europe faces significant regulatory challenges.
AN reported Q2 18 results this AM with total revenue growth of +2.1% missing Cons of +2.7% but beating our +0.4%. EPS of $1.07 missed Cons of $1.13 and our $1.17 with an impairment of $0.07 explaining the miss (albeit gains on asset sales continue to help the bottom line). Of the three focus areas, P&S Gross Profit and SG&A/Gross Profit both disappointed, but Used $GP growth popped on compares/transitory issues from the hurricane.
Today (07/17/18), after close, Sonic Automotive (SAH, not covered) pre-announced a significant Q2 EPS miss as a result of lower $GP/Unit at BMW and Honda dealerships due to lower OEM incentives on certain models. SAH is now guiding Q2 EPS of $0.32-$0.36 vs. Cons. $0.48 and FY EPS of $1.90-$2.00 vs prior of $2.21-$2.45 and Cons. of $2.26. SAH expects to see margin pressure continue into Q3 at Honda and BMW. Ascribing SAH’s entire miss versus Cons to New $GP/Units would seem to imply a very large decrease (at least DD). ABG is the first to report Q2 results on July 24th.
We undertook the unenviable task of reading the proxy for every company under coverage (and one we don’t cover: TSLA).
Using Return on Invested Capital as a lens, we take a look at which companies and sub-industries capture the highest returns within the automotive value chain. We calculate ROIC across 27 companies within industries including dealers, OEMs, parts suppliers, aftermarket retailers, and service providers.
- 1 of 4
- next →