Penske Automotive Group, Inc. (NYSE:PAG) just released its latest third-quarter results and things are looking bullish. The company beat both earnings and revenue forecasts, with revenue of US$6.0b, some 6.9% above estimates, and statutory earnings per share (EPS) coming in at US$3.07, 91% ahead of expectations. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the current consensus from Penske Automotive Group's ten analysts is for revenues of US$22.3b in 2021, which would reflect a notable 8.6% increase on its sales over the past 12 months. Per-share earnings are expected to increase 10.0% to US$6.07. In the lead-up to this report, the analysts had been modelling revenues of US$22.0b and earnings per share (EPS) of US$5.66 in 2021. So the consensus seems to have become somewhat more optimistic on Penske Automotive Group's earnings potential following these results.
The consensus price target rose 9.7% to US$63.00, suggesting that higher earnings estimates flow through to the stock's valuation as well. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Penske Automotive Group analyst has a price target of US$84.00 per share, while the most pessimistic values it at US$47.00. This shows there is still a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's clear from the latest estimates that Penske Automotive Group's rate of growth is expected to accelerate meaningfully, with the forecast 8.6% revenue growth noticeably faster than its historical growth of 3.0%p.a. over the past five years. Other similar companies in the industry (with analyst coverage) are also forecast to grow their revenue at 9.1% per year. Penske Automotive Group is expected to grow at about the same rate as its industry, so it's not clear that we can draw any conclusions from its growth relative to competitors.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Penske Automotive Group's earnings potential next year. Happily, there were no real changes to sales forecasts, with the business still expected to grow in line with the overall industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
With that in mind, we wouldn't be too quick to come to a conclusion on Penske Automotive Group. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for Penske Automotive Group going out to 2022, and you can see them free on our platform here..
And what about risks? Every company has them, and we've spotted 3 warning signs for Penske Automotive Group (of which 1 makes us a bit uncomfortable!) you should know about.
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