Asbury Automotive Group Inc.ABG

Morningstar Rating

Stock Research and Analysis

by David Whiston, CPA, CFE

Although no auto dealer is immune to macroeconomic risks, Asbury Automotive Group's heavy emphasis on luxury/import brands, focused acquisition strategy, and diverse revenue streams should provide the firm with enough protection to weather the current Read more

Bulls Say

The firm's heavy mix of luxury and import brands brings more-affluent consumers to the dealership, which might mitigate the cyclical downturn that auto sales are starting to experience.

Moving all dealer management systems to one platform could help improve operating margins as the company becomes more efficient.

Sizable dealership companies enjoy economies of scale, albeit limited ones.

Auto dealerships generally are terrific businesses that can maintain a narrow range of operating margins depending on economic conditions. Read more

Bears Say

Customers could delay maintenance or choose a cheaper independent repair shop instead of going to the dealer for servicing, which would negate the technological advantage that Asbury enjoys over smaller repair shops.

Overpaying for acquisitions is a big risk and can lead to value destruction for investors. Acquisition accounting provides great cover for accounting shenanigans, should the management of an auto dealership be inclined to be less than forthright.

Asbury's profits may never be as high as they used to be because its product mix is gradually shifting to smaller fuel-efficient cars instead of high-margin light trucks.

If Asbury does breach its debt covenants, equityholders would lose out to the benefit of creditors. Possible outcomes would be massive dilution or bankruptcy. Read more

Strategy

Asbury is selling or fixing unprofitable locations and increasing sales of higher-margin parts, services, and finance-related services to improve same-store profits. The company has stopped making acquisitions, Read more

Management

In May 2007, Charles Oglesby replaced the retiring Kenneth Gilman as president and CEO. Oglesby has been with Asbury since 2002 and was named COO in mid-2006. During his time with Asbury, Gilman, who spent 25 years at Limited Brands LTD, and his team Read more

Profile

Asbury Automotive is a nationwide collection of automobile dealerships that went public in March 2002. The company operates about 80 stores (including over 100 new-car franchises Read more

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