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Group 1 Earnings: Buybacks Boost EPS and Firm Looks Well Positioned To Succeed in 2023

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Group 1 Automotive Inc
(GPI)

We see nothing in Group 1′s GPI first-quarter results to merit changing our fair value estimate. Adjusted diluted EPS from continuing operations grew 1.1% year over year to $10.93, which beat the Refinitiv consensus of $9.87. We calculate EPS would have fallen 15.5% excluding share repurchases done since the prior year’s quarter. For the 18 months ended March 31, management has reduced the number of outstanding shares by 23.1% at an average price of $178.91 per share, which we like as it is below our fair value estimate and below where the stock trades on April 26. The first quarter saw 1.3% of the beginning 2023 share count repurchased for $34.7 million and remaining authorization is $128.5 million. The board also increased the annualized dividend rate by 20% in February to $1.80 per share. With $672 million in liquidity we see the company well set up to grow via acquisitions while also continuing to return cash to shareholders. The company said some sellers of potential acquisition targets are having unrealistic expectations, so aggressive repurchases are, in our view, likely to remain a key part of capital allocation this year. In March, however, Group 1 acquired the fifth-largest Chevrolet store in Florida, which is expected to add $150 million in annual revenue.

Same-store revenue rose 3.9% and was up 6% excluding foreign exchange, while total revenue grew 7.4% thanks to strong double-digit growth in new-vehicle and service revenue. Service also had an all-time record quarterly sales and gross profit as deferred maintenance from the pandemic continues to now be done. Management talked about further service gains possible if it can increase its service customer retention above the current 68% level (based on a vehicle having two service visits across 15 months) and hire more technicians. The latter is an ongoing problem for the industry, but Group 1 has had success increasing its head count by offering a flexible work schedule.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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