Asbury Automotive Group(ABG) ZACKS·2025-01-08 16:06Core Viewpoint - The Zacks Auto Retail and Wholesale industry is facing challenges due to declining profit per unit and high vehicle financing costs, despite stable demand for vehicles. Companies like Lithia Motors, Group 1 Automotive, and Asbury Automotive are expanding their digital and physical presence to adapt to these challenges [1]. Industry Overview - The automotive sector's performance is heavily reliant on retail and wholesale networks, including dealerships and retail chains that sell vehicles and provide related services. Economic conditions significantly influence consumer spending on big-ticket items, with the pandemic accelerating the shift towards e-commerce [2]. Factors Influencing Industry Prospects - Anticipated decline in internal combustion engine (ICE) vehicle sales is expected, with projections indicating that ICE vehicles will account for only 75% of total sales volume by 2025, leading to potential price reductions and margin pressures for dealers holding ICE inventories [3]. - Affordability challenges persist as high-interest rates deter customers from vehicle purchases. Despite recent interest rate cuts by the Federal Reserve, rates remain significantly higher than pre-pandemic levels, which may continue to impact the auto retail industry [4]. Expanding Market Presence - Auto dealers are strategically acquiring new markets to enhance their market share and profitability. The focus on digital presence is also helping them reach a broader customer base [5]. Zacks Industry Rank - The Zacks Auto Retail & Wholesale industry currently holds a rank of 177, placing it in the bottom 29% of approximately 250 Zacks industries, indicating dim near-term prospects [6][7]. Earnings Outlook - The industry's earnings estimates for 2025 have declined by 30.80% over the past year, reflecting a negative outlook from analysts regarding earnings growth potential [8]. Stock Market Performance - The Zacks Auto Retail & Wholesale industry has underperformed compared to the S&P 500 and the broader Auto, Tires, and Truck sector, with a return of 8.7% over the past year, while the sector and S&P 500 grew by 26.2% and 26.9%, respectively [10][11]. Current Valuation - The industry is currently trading at an EV/EBITDA ratio of 8.39X, significantly lower than the S&P 500's 18.67X and the sector's 22X, indicating a valuation discount [14]. Company Highlights - Lithia Motors, Inc. (LAD): A leading automotive retailer with a diversified product mix and multiple income streams, positioned for long-term growth. The company expects 2025 sales and EPS growth of 8.08% and 17.74%, respectively, with a recent EPS estimate increase of 0.25 [24]. - Asbury Automotive Group, Inc. (ABG): One of the largest automotive retailers, leveraging its Clicklane e-commerce platform for online transactions. The company expects 2025 sales and EPS growth of 2.70% and 7.23%, respectively [28].