Penske Automotive Down 26% from 2020 Peak, 10% Gain Possible Post-Covid?

Comparing the trend in Penske Automotive Group’s stock (NYSE: PAG), an automotive retailer that sells new and used motor vehicles, maintenance, and repair services, over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock could likely gain 10% and reach around the levels of $43, once fears surrounding the coronavirus outbreak are put to rest. Penske has a used to new car ratio of 1.43 (as of Q1 ending March). The used car business is already depressed since the Covid-19 shut down, due to reduced prices, low demand, and increased inventory. Given the Hertz bankruptcy, several thousand cars could be flooded into the used car market – which could send the car prices even lower. This could likely make it more difficult for the auto retailer to regain its pre-Covid sales.

A detailed comparison of Penske Automotive Group performance vis-à-vis the S&P 500 is available in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Penske Automotive Group Stock Fare Compare With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19 with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. PAG stock lost 59% of its value (vs. about 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover 84% over recent weeks (vs. about 40% gain in the S&P 500) to its current level of close to $39.

PAG Stock Fell Because The Situation On The Ground Had Changed

Business shutdowns across the world had a ripple effect on new car production through disrupted supply chains and subdued buying activity due to job losses. In the recent Q1, Penske’s total revenues declined 10% y-o-y to $5 billion. Within the retail automotive segment, new-vehicle revenues fell 14% y-o-y to $1.9 billion and used-vehicle revenues declined 11% y-o-y to $1.6 billion. In addition, the company’s adjusted earnings per share declined 49% y-o-y to 64 cents. During the quarter, the company’s operating income fell 33% y-o-y to $106 million.

Now, as the stay-at-home orders are being lifted gradually and the economy seems to be showing signs of recovery – we believe that Penske can come back in the automotive aftermarket. However, if signs of coronavirus containment aren’t clear by its upcoming August Q2 earnings timeframe, it’s likely that PAG’s stock is going to see a continued drop when results confirm reality.

PAG Stock Fared Worse During The 2008 Downturn

But PAG stock witnessed something similar during the 2008 downturn. PAG’s stock declined from levels of around $16 in October 2007 (the pre-crisis peak) to roughly $5 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 71% of its value from its approximate pre-crisis peak. This marked a much higher drop than the broader S&P, which fell by about 51%.

However, PAG’s stock recovered post the 2008 crisis, to levels of over $12 in early 2010, rising by 168% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will PAG Stock Recover Similarly From The Current Crisis?

Penske Automotive Group’s stock fell roughly 59% from the market peak on February 19 to the low on March 23, compared to a 71% decline seen in its stock price during the 2008 recession. Also, since it has recovered almost 84% over recent weeks – we believe it can potentially recover by another 10% to close to $43 once economic conditions begin to show signs of improving. This marks a partial recovery to around the $50 level PAG stock was before the coronavirus outbreak gained global momentum.

While Penske Automotive Group’s stock doesn’t have much of a near term upside, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

Also, see how the new and used car seller AutoNation’s recent stock performance compared to the 2008 crisis here.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting U.S. Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture further. A complete set of coronavirus impact and timing analyses is available here.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams