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KAR reported Q2 on 8/6 with a call on 8/7. KAR beat on revenue but missed significantly on EBITDA. However, one-off items helped to explain much of the weakness. While results were disappointing relative to the high expectations set into the spin, we did take some solace in strong underlying EBITDA growth. If KAR hits 2H numbers and proves these were isolated issues, then we see considerable room to run given valuation/growth profile. We cut est. slightly but raise our CY 19 price target to $33 (was $31) on higher than expected cash post-spin. Shares -6%. 

We re-initaited on KAR shares with a $31 PT. We see the combination of DD FCF Yield, 4-5% dividend yield, 6-9% organic growth algorithm, and 5pt margin opportunity (20% upside) as a compelling opportunity at 8.4x EBITDA (7.6x ex-Trade Rev). Importantly, if we are right, and KAR achieves these growth targets, grows Trade Rev, and disproves online bears, we think KAR shares could see an additional 20% upside on multiple expansion. See full report here. See our bullish IAA report too. 

We are re-initiating on stand-alone KAR with a $31 CY 19 Price Target. We see undemanding valuation at 8.4x NTM EBITDA or 7.6x (ex- Trade Rev) with a 9.5% FCF yield offering good risk reward for a stock with 6-9% targeted organic growth with additional upside from a 5pts of margin expansion (20% to ADESA segment EBITDA growth). We see downside as protected due to the threat of an LBO. 

We wanted to flag a few highlights in today's (07/09/19) Wolfe Research Auto Daily....

Reuters battery article highlights disconnect between CO2 commentary and reality

VW Purchasing Chief clarifies that co-investing will be required to secure battery supply. And another data point that makes 7%-8% EV adoption targets for 2020 / 2021 seem almost impossible.

Geely guidance cut highlights concerns about China
 
Geely cut 2019 delivery guidance by 10% and issued a profit warning, underscoring concerns about the China market.

Manheim Q2 Call: Used Pricing Remains Strong in June, and Used Retail Sales Outlook More Positive than Expected

Generally strong used pricing, modest retail used vehicle sales growth in 2019 and 2020, and plateauing off-lease were our key takes from Manheim’s quarterly call.