Conventional Dealerships Will Falter And Electric Vehicles Will Surge

Key Takeaways

• Market optimism may be overestimating sustained growth and profitability, as industry shifts and demographic changes threaten both revenue and cost structures.
  
• Heavy reliance on physical dealerships and OEM relationships could expose the company to risks from digital disruption and evolving manufacturer agreements, impacting future earnings stability.
  
• Dominant market share, cost efficiency, expanding electric vehicle presence, and a scalable retail platform position the company for resilient, diversified long-term profit and revenue growth.

Catalysts

Owns and operates motor vehicle dealerships in Australia and New Zealand.

• Investors may be overvaluing Eagers Automotive on expectations that its rapid top-line growth and record new/used vehicle volumes will be sustained, even as rising average vehicle age and a growing vehicle parc boost replacement demand; this could prove optimistic if these tailwinds fade, leading to a future revenue shortfall versus the run-rate implied in current valuations.
  
• Current market pricing seems to assume the company will consistently consolidate market share amid ongoing urbanisation and population growth, but demographic shifts like declining license ownership among younger people may dampen long-term volume growth and pressure both revenue and earnings trajectories.
  
• The perceived competitive moat from Eagers' physical dealership network and its expansion is factored into the valuation, yet the accelerating trend towards online and direct-to-consumer vehicle sales may structurally weaken its core business model, risking lower net margins as foot traffic declines and fixed dealership costs remain high.
  
• While operational efficiencies and network consolidation have reduced cost ratios to historical lows, the market may be underestimating the risk that industry moves to fixed-price, agency sales models and heightened regulatory costs will cap or compress dealership profitability, ultimately limiting future margin expansion and earnings growth.
  
• Optimism around Eagers' ability to dominate the electric vehicle transition and expand services relies on its current strong OEM relationships; however, its concentrated portfolio and high asset intensity could expose it to adverse shifts in manufacturer agreements or greater EV market disruption, resulting in revenue and margin volatility not fully reflected in today's premium multiples.

Eagers Automotive Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Eagers Automotive's revenue will grow by 7.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.7% today to 2.4% in 3 years time.
• Analysts expect earnings to reach A$358.9 million (and earnings per share of A$1.37) by about September 2028, up from A$207.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as A$307.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.7x on those 2028 earnings, down from 33.3x today. This future PE is lower than the current PE for the AU Specialty Retail industry at 26.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.81%, as per the Simply Wall St company report.

Eagers Automotive Future Earnings Per Share Growth

Risks

• Eagers Automotive's unique scale (now holding 14% of the total new car market and over 34% share of plug-in and new energy vehicle sales in Australia) gives it strong operating leverage and industry consolidation advantages, positioning it for continued market share and revenue growth as smaller players exit or sell out. (Impacts: Revenue, market share, net margins)
  
• The company's Next100 Strategy is driving significant productivity improvements, property footprint consolidation, and portfolio optimization, resulting in a record-low cost base (12.1% of sales, down from 13%) and increasing scale-driven efficiencies, supporting higher net margins and resilience across economic cycles. (Impacts: Net margins, cost efficiency, earnings resilience)
  
• Eagers is leveraging a strong multi-brand, omni-channel, and tech-enabled retail platform (including easyauto123), which is accelerating growth in the large and fragmented used car market and explicitly positioned as a scalable, capital-light growth engine with record profit unit economics-offering significant upside to revenue and profit as execution continues. (Impacts: Revenue, profit growth, margin expansion)
  
• Eagers' active expansion into the high-growth electric vehicle segment (holding over 42% share of plug-in vehicles sold through franchises and key partnerships with new entrants like BYD) strategically positions the company as a leading beneficiary of the accelerating electrification trend, regulatory fleet renewal incentives, and the long-term shift in mobility demand. (Impacts: Revenue diversification, long-term earnings growth, resilient margins)
  
• The company's robust balance sheet, significant property asset base, proven M&A track record, and strong pipeline of domestic and potential international acquisitions (enabled by low gearing and ample liquidity) provide long-term optionality for accretive growth, scale synergies, and further business optimization to enhance revenue and profitability. (Impacts: Revenue growth, net margins, long-term shareholder returns)

Valuation

• The analysts have a consensus price target of A$23.378 for Eagers Automotive based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$28.62, and the most bearish reporting a price target of just A$14.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$15.1 billion, earnings will come to A$358.9 million, and it would be trading on a PE ratio of 21.7x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of A$26.8, the analyst price target of A$23.38 is 14.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.