Asbury Automotive Earnings: Profit Margins Remain High Despite Falling Earnings

We are not changing our Asbury fair value estimate after the firm reported second-quarter adjusted diluted EPS of $8.95 that beat the $8.24 Refinitiv consensus. Management in April said it will provide an update on its 2025 revenue and EPS targets of $32 billion and at least $55 per share, respectively, at the end of this year. This plan assumed $6.9 billion of acquired revenue for 2023-25, but 2023 has only seen divestitures. CEO David Hult said on the call that they are in aggressive conversations on deals, so something may be looming. If the 2025 targets are reduced, we’d expect share repurchases to accelerate but we may also reduce our fair value estimate in that scenario to reflect 2025 revenue well below the approximately $32 billion we currently model. So far in 2023, Asbury has repurchased $211 million, or 1.1 million shares, and in May the board approved new authorization of $250 million. The balance sheet looks solid to us with adjusted net debt/EBITDA at 1.7 times, which is well below management’s target range of 2.5 to 3.0 times.