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Sydnee Gatewood
Sydnee Gatewood
Articles (2226) 

David Abrams Accelerates Stake in Asbury Automotive

Guru increases holding of car retailer

March 23, 2020 | About:

David Abrams (Trades, Portfolio), leader of Abrams Capital Management, disclosed last week his firm upped its stake in Asbury Automotive Group Inc. (NYSE:ABG) by 11.34%.

A former protégé of renowned investor Seth Klarman (Trades, Portfolio), the guru follows a fundamental, value-oriented approach to stock picking, investing in a fairly concentrated number of stocks. His Boston-based firm looks for long-term opportunities across a wide array of asset types in both foreign and domestic markets. Abrams also prefers companies in which the CEO has a significant stake, or where the CEO’s salary is primarily stock-based.

Asbury Automotive

According to GuruFocus Real-Time Picks, a Premium feature, Abrams invested in 215,688 shares of the Duluth, Georgia-based company on March 19. He now holds 2.12 million shares, which represent 2.84% of the equity portfolio.

The company, which operates car dealerships across the U.S., has a $1.02 billion market cap; its shares were trading around $51.36 on Monday with a price-earnings ratio of 5.54, a price-book ratio of 1.58 and a price-sales ratio of 0.15, which GuruFocus noted were near multiyear lows.

The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued. The GuruFocus valuation rank of 8 out of 10 supports this assessment.

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On Feb. 3, the auto retailer reported fourth-quarter and full-year 2019 financial results. For the quarter, Asbury posted adjusted earnings of $2.53 per share on $1.89 billion in revenue, a 6% increase from the prior year. Adjusted earnings for the full year were $9.46 per share on $7.2 billion in sales, which marked 5% growth from a year ago.

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GuruFocus rated Asbury’s financial strength 4 out of 10. As a result of issuing approximately $67.3 million in new long-term debt over the past three years, the company has low interest coverage. The Altman Z-Score of 3.79, however, indicates it is able to meet its short-term debt requirements.

The company’s profitability fared much better, scoring a 9 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of competitors and a high Piotroski F-Score of 7, which implies business conditions are healthy. Boosted by consistent earnings and revenue growth, Asbury also has a perfect business predictability rank of five out of five stars. GuruFocus says companies with this rank typically return an average of 12.1% per annum over a 10-year period.

Abrams is Asbury’s largest guru shareholder with 10.99% of its outstanding shares. Other top guru investors are Chuck Royce (Trades, Portfolio), Hotchkis & Wiley, Paul Tudor Jones (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Joel Greenblatt (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Caxton Associates (Trades, Portfolio).

Portfolio composition

Nearly 30% of the guru’s $3.22 billion equity portfolio, which was composed of 21 stocks as of the end of fourth-quarter 2019, is invested in the consumer cyclical sector, followed by smaller positions in the health care (20.02%) and financial services (16.11%) spaces.

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Other vehicle and parts companies Abrams’ firm owned as of Dec. 31 were Camping World Holdings Inc. (NYSE:CWH) and Lithia Motors Inc. (NYSE:LAD).

Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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