If you are a NASCAR fan, you have probably heard of Team Penske, owned by Roger Penske, the man who aquired United Automotive Group in 1990, now known as Penske Automotive (NYSE: PAG). Yet Penske's automotive empire extends well beyond transportation services, including commercial dealerships, commercial vehicle distribution, engine sales and parts sales. The company has gotten the attention of investors looking for a solid dividend yield and coming out of its release of quarter two results, that were released on July 28, Penske investors saw the automotive giant beat earnings estimates and grow revenue over 7%. Let's take a look at Penske to see what is taking place internally and if shareholders can see even more growth.
How fast will Penske accelerate earnings?
In recent months, analysts have raised their earnings estimates. They have reduced their next quarter projections by 4%, from 1.04 to 1.01 and only minimally lowered 2017 predictions as well, from 4.27 to 4.24. Yet the stock has been good to investors, rising 16% over the last quarter.
Penske's second quarter results helped to continue its history of outperformance. Retail unit sales, revenue, income and earnings per share are at their highest ever. With unit sales growing rapidly, digital marketing has also played a massive role, up almost 25% in the second quarter. Penske's International business is now 40% of the entire business, while North America is 60%
What's Behind Penske's Performance?
A closer look at Penske's business shows just how far this company is expanding. In Australia, the company introduced both their trucking and distribution parts of their business. The Penske brand is also a diverse mix, with 72% being premium luxury, 24% being foreign and only 4% being the "big three". In the trucking segment of the business, Penske has seen growth through acquiring truck centers. Also playing a role is that Toyota (TM, Financial) and Honda (HMC, Financial) have had to increase their prices due to the volatility the yen has been facing. Acquisitions have also benefited Penske through the tax benefits that come with them through depreciation.
For dividend investors, the appeal of Penske is its rising dividend as well as the fact that its dividend are the highest in the automotive retail space. While the dividend increases have been criticized for being too small (a penny increase each quarter), the dividend yield today is 3%
Penske has never stopped the pursuit of growth and expansion. The company has increasingly gone after international growth, expanding into Toronto (Canada), Australia and the U.K. At the same time, Penske is navigating through foreign exchanges. While some businesses are slow to adapt, Penske is ready to adapt to the market conditions and generate significant cash flow for the future.
In the Penske earnings report, investors saw how Roger Penske made his first mark on the direction of the company. Penske knows the core competencies of the company and takes a slow and steady approach to growth.
Disclosure: No position in the stock mentioned.
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