$ABG - Asbury Auto Group Inc. is the 6th largest automotive retailers in the USA with over 200 franchises/locations across 15 states, making it large enough to be included in the Fortune 500. Asbury's stores offer a range of automotive products and services; including new/used vehicles, vehicle parts, repair and maintenance products and services, collision repair services, and insurance/financial services.
In terms of their financial reporting, Asbury splits their revenue streams into 3 main segments. These segments include new/used cars, parts and service, and finance and insurance.
Over 50% of Asbury's revenues come from 3 vehicle manufacturers, which include Toyota Motors (Toyota and Lexus) - 21%, Honda Motors (Honda and Acura) - 20%, and Mercedes-Benz - 10%.
Asbury has described their biggest goal as “Being the most guest-centric automotive retailer in the USA.” Asbury plans to achieve this by offering professional service that strives to maximize customer satisfaction, maximize value for their shareholders/debtholders that fuel their mission/growth, and foster an environment where staff can thrive personally and professionally.
Asbury has outlined their plan for growth in their Q3 2021 investor presentation. This plan outline 3 facets of growth that they are looking to exploit. These 3 facets can be found/explained below:
Asbury is hoping that these 3 facets of growth will translate into a 20% CAGR, increase their operating margins, and grow EPS by 20%+ per year.
My Opinions on Growth:
From their investor presentation, it is evident that Asbury needs to focus on expanding their Parts & Service, and Financial & Insurance segments.
This is due to the fact that their parts and service segment is responsible for only 12% of their annual revenues but makes up 38% of their gross profits. This segment has high gross margins and can help to grow their business very quickly. Asbury has noticed this and has been focused on undergoing a digital transformation since 2016. This digital transformation included offering Online service appointments (parts and service) to their customers. Since 2016, their online appointments have grown at 42% per year. This is great news for their future and is showing that Asbury is investing in the right places (digital) to grow revenues in their segments that yield high gross margins (Parts and services).
Furthermore, Asbury's Financial and Insurance segment accounts for 4% of annual revenues, but 21% f their gross profits. This segment yields the largest gross margins and should be the main focus for growth. Historically, Asbury has grown this segment by 5.2% annually. In the future, I would like to see them grow this segment at a higher CAGR.
Instead of explaining their ESG initiatives by text, I think it is better to just insert their visuals from their investor presentation.
Asbury has diversified their new and used car holdings by both brand, and class. Asbury carries over 29 brands of vehicles that span across 3 classes of vehicle (luxury, import, and domestic). By diversifying across these spaces within the automotive industry will help Asbury decrease their risk. A chart displaying these classes/brands can be found below.
This sectioned is designed to give you (the reader) insight into the background of the highest (executive) managers/officers at Asbury. The following people are listed as the highest-ranking members of the Asbury Management Team.
David Hult (President & Chief Executive Officer): Mr. Hult joined Asbury as Executive VP and COO in November 2014. David is responsible for Asbury's strategy and is also the senior liaison to Asbury's board, investors, and manufacturing relationships. In his role as CEO, he will remain hands-on working with operations leadership in developing strategic policies and programs to drive profitable and stable growth across the company. Prior to Asbury, David served in the US Army, served as Chief Operating Officer at RLJ McLarty Landers, and at various automotive retail companies including Group 1 Automotive and Penske Automotive Group.
Michael Welch (Senior VP & Chief Financial Officer): Mr. Welch joined Asbury in August 2021 after holding the position of VP and Corporate Controller at Group 1 Automotive, Inc. “$GPI” since June 2019. From June 2000 until June 2019, Mr. Welch held various high-ranking positions with Group 1 Automotive, where he gained experience in treasury, financial reporting, financial planning, and analysis. Mr. Welch hols a BBA from Oklahoma Baptist University and is a CPA in the State of Texas.
Jed Milstein (Senior VP & Chief HR Officer): Mr. Milstein joined Asbury in July 2016 from Americold where he was also the Chief HR Officer. His HR experience includes specialist, generalist and shared services roles in companies spanning the retail, data, logistics, healthcare, and manufacturing industries. Earlier in his career, Mr. Milstein served as a Deputy Attorney General for the State of New Jersey prior to joining the labor and employment law practice at Carpenter, Bennett and Morrissey in Newark, New Jersey. Mr. Milstein holds a JD from George Washington University Law School and a BBA from the University of Michigan.
As you can see, Asbury's highest level management officers all have rich histories in their respective fields, and have experience in the auto industry, with some of Asbury's largest competitors (as you will see in the next section).
In order to undergo the comparable analysis, we need to get an idea of their closest competitors. These competitors must operate in the same space, operate in similar geographies, be of similar market cap, and have valid financial ratios. Using this criterion, I came up with the following.
Comparable Analyses: (Spreadsheet found at the end of this analysis)
By comparing Asbury's financial ratios to that of their publicly listed competition (listed above in the “competitors” section) I found the following:
Based off of Asbury's Price to Earnings Ratio in comparison to their competitors, $ABG stock should be valued at $186.28/share, which would imply a share price increase of 11%, which is very reasonable.
Asbury's PEG ratio (compared to their counterparts) indicates that the ABG stock should have a fair value of $167.87/share, which would imply their stock is currently at it's fair value. This comparable reflects a slightly different story than the P/E multiple, however, they both show that ABG has good value.
Asbury's EV/EBITDA ratio indicates that their fair value is $164.81/share, which would translate into a downside risk of 2%. This contradicts the other 2 comparable analyses, and implies that ABG is slightly overvalued compared to their competitors
Due to the slight variability between comparable analyses, I decided to take average the 3 comparable results. By doing this I arrived at a final comparable valuation of $173, which implies an upside potential of 3%
DCF: (Visualization found at the end of this analysis)
By inputting the necessary data into my DCF model, I arrived at a fair valuation of $ABG stock of $464/share, which implies an upside potential of 175%.
In order to provide simplicity, I wanted to come to one final, all-encompassing valuation for the $ABG stock. I did this through taking the average valuation of the Average Comparable, and the DCF model. By doing this I arrived at a price target for the $ABG stock of $318.24/share, which implies an upside of 90%.
My plan for an investment in the $ABG stock would go as follows: