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Auto Roundup: CPRT's Quarterly Results, GPI's Portfolio Optimization & More

Last week, China vehicle sales data for August was released. Vehicle sales in the world’s largest car market rose 32.1% year over year to 2.38 million units for the third consecutive month on the back of relaxation of COVID-induced curbs as well as stimulus packages offered by the government in an effort to revive the market. Nonetheless, the volumes declined slightly from 2.42 million units sold in July. Sales in the first eight months of 2022, however, inched up 1.7% year on year. Sales of new energy vehicles more than doubled to 632,000 cars from August 2021 levels.

On the news front, the online auto auction leader Copart, Inc. CPRT released its quarterly results, wherein it beat both the top-and-bottom-line estimates. Auto retailers Sonic Automotive SAH and Group 1 Automotive GPI continued their expansion initiatives. Focused on portfolio optimization, GPI acquired a BMW/MINI dealership in London. Meanwhile, Sonic added Roseville to its EchoPark footprint.

Auto equipment provider Magna International MGA also made the headlines with its collaboration with an autonomous robotics company, Cartken, for fully autonomous delivery robots. Magna’s intensive focus on developing a wide range of products, from electrified power trains and battery enclosures to advanced driver assistance systems, is fueling its long-run prospects.

Finally, in what could be one of Europe’s largest IPO, Volkswagen AG VWAGY announced its plans to proceed with the public listing of its celebrated sports car brand, Porsche. The IPO is crucial as it comes at a time when European stocks are staggering amid very high inflation rates and a spiraling energy crisis in the continent due to the Russia-Ukraine standoff. At such crossroads, this IPO is believed to test investors’ confidence.

Last Week’s Top Stories

Copart reported fourth-quarter fiscal 2022 (ended Jul 31, 2022) adjusted earnings per share of $1.13, topping the Zacks Consensus Estimate of $1.08. The outperformance was due to higher-than-anticipated revenues from vehicle sales. The bottom line rose 9.7% year over year from $1.03 reported in the prior-year quarter. Our estimate for fiscal fourth-quarter 2022 EPS was $1.09. Revenues of $883.4 million beat the Zacks Consensus Estimate of $873 million. The top line also increased 18% from the year-ago reported figure of $748.6 million. Our estimate for the top line was $887.3 million.

Fiscal fourth-quarter service revenues came in at $707.8 million, up from $620 million recorded in the year-earlier period. Vehicle sales totaled $175.5 million in the quarter, up from the prior-year level of $128.5 million. Copart had cash and cash equivalents of $1,384.2 million as of Jul 31, 2022, compared with $1,048.3 million as of Jul 31, 2021. Long-term debt reduced to $1.9 million at the end of the reported quarter from $397.6 million as of Jul 31, 2021.

Volkswagen announced that it intends to plan Porsche’s IPO at the end of September or the beginning of October this year, subject to capital market conditions. As part of the preparation for the listing, Porsche’s stock has been split into 50% ordinary shares and 50% non-voting preferred stock. VWAGY has decided to list Porsche on the Frankfurt Stock Exchange and offer 25% of preferred stock to private investors through the IPO. Porsche is expected to value in the range of $60-$85 billion.

Porsche’s status and reputation as a luxury brand enable it to bump up prices, making it a cash-spinner for the Volkswagen Group. Porsche’s operating profit jumped 22% in the first half of this year, while Volkswagen registered an 8% fall. The IPO would thus be a significant step for Volkswagen to pump up funds to fuel its ambitious EV plans. If the IPO is successful, 49% of its proceeds will be distributed to its shareholders in the form of a special dividend, likely to be paid at the beginning of 2023.

Magna and Cartken have inked an agreement per which the former will manufacture Cartken’s autonomous delivery robot fleet to cater to the booming demand for last-mile delivery. The manufacture of Cartken’s Model C robots has begun at a Magna facility in Michigan. There are plans to elevate the yield over the next few months and include additional autonomous delivery models based on the same platform for different use applications and robot-as-a-service business models.

Magna is a top player in the domain of automobility, producing a massive number of vehicles across a range of different models. It is already riding on the strength of its portfolio and the changing dynamics of the auto industry. The latest collaboration adds another feather to Magna’s cap. The partnership, leveraging Magna’s know-how in automotive mobility and advanced technologies, is a step toward offering sustainable and cost-effective solutions for last-mile delivery challenges. It will benefit both companies in scaling up their respective businesses.

Group 1 announced the buyout of an Essex-based BMW/MINI dealership and a collision center. With this buyout, Group 1 has expanded its foothold further in the UK. The latest purchase has expanded GPI’s UK operations to 56 dealerships and is set to add $80 million to the company’s total annualized sales. The move comes a year after the auto retailer added nine car dealerships to its UK operation with the buyout of Robinsons Motor.

Group 1’s acquisitions of dealerships and franchises to expand and optimize its portfolio are bolstering the firm’s prospects. In 2021, the company completed transactions representing $2.5 billion of acquired revenues. So far in 2022, Group 1 completed transactions accounting for $740 billion of acquired revenues.

GPI currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sonic announced the opening of its newest retail hub in Roseville near Sacramento, CA. This expands its EchoPark Automotive brand. The new facility will be EchoPark's 41st location to date and second in California. Customers will now be able to shop in person or take delivery of their purchase at the new location after browsing through and choosing products on the EchoPark website. From booking an appointment to assisting in doorstep delivery, the website ensures it all.

The EchoPark unit has been the major growth engine of Sonic. The EchoPark brand reached more than 30% of the U.S. population at 2021-end and aims for 90% U.S. population coverage by 2025.  Importantly, Sonic targets 575,000-unit sales with a nationwide distribution network of more than 140 EchoPark stores by mid-decade. It aims to achieve $14 billion in annual EchoPark revenues by 2025, driving toward the annual vehicle sales goal of 2 million units at maturity.

Price Performance

The following table shows the price movement of some of the major auto players over the last week and six-month period.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

What’s Next in the Auto Space?

Industry watchers and car enthusiasts will keep a close eye on the 2022 Detroit Auto Show beginning on Sep 14.  Also, stay tuned for any updates on how automakers will tackle the semiconductor shortage and make changes in their business operations.

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