Group 1 Earnings: Record Service Profit Effectively Counterbalanced Used Vehicle Weakness

Group 1’s second quarter saw adjusted diluted EPS from continuing operations fall from the prior year’s record $12 figure, but the decline was only 2.3% to $11.73, which beat the $11.08 Refinitiv consensus. Same-store revenue grew 5.9%, with only finance and used vehicles not growing, a pattern across our auto dealer coverage this earnings season. Used vehicles are suffering from low late model availability and high prices induced by the chip shortage and pandemic. We raise our fair value estimate to $260 per share from $246 on: 1) the time value of money; and 2) slightly higher revenue growth over our five-year explicit forecast period than our prior assumption—due to 2023 U.S. new light vehicle sales trending higher than our prediction of as high as 14.7 million.