Asbury's Q2 Hits All-Time Record Adjusted Diluted EPS

Asbury’s all-time record quarterly adjusted diluted EPS of $10.04 (Refinitiv consensus was $8.82) rose 29% year over year and gave us no reason to change our fair value estimate. Same-store revenue fell 7% on a 22% new vehicle decline from the chip shortage, but new vehicle gross profit rose by 3% thanks to a 49% rise in new vehicle gross profit per unit to $5,793, offsetting a 31% fall in new vehicle volume. We see the stock as undervalued and remain confident management can meet or exceed its 2025 targets (given in April) of at least $55 EPS and $32 billion of revenue. The dealer sector is highly fragmented, and we see Asbury in a great position with about $1 billion of liquidity to keep growing via acquisitions, organically, and digitally with its Clicklane tool while buying back shares, though all of the first half’s $200 million in buybacks occurred in first quarter. Management wants its net leverage ratio to be about 2 times before resuming acquisitions following the large purchase late last year of Larry Miller dealerships, and the June 30 ratio is 2.1 times, down from 2.7 at Dec. 31. Acquisitions are the first priority for capital, but we expect more buybacks this year and we’d welcome lots of buybacks given the stock trades well below our fair value estimate. That said, we like that about $200 million of debt has been retired this year.