美国汽车经销商：10年来估值过低折扣过高

1、US Auto DealershipsDecade-Low Valuations Over-Discount Industry Headwinds; Initiate LAD & GPI at OW, ABG & PAG at N, and AN & SAH at UWNorth America Equity Research19 February 2019We initiate coverage on the US Auto Dealership sector with a balanced view on theindustry but a constructive view on the

2、 stocks, acknowledging various cyclical and structural industry headwinds, while believing near decade-low valuations suggest an over-discounting of these trends investors. We recommend Overweight-rated Lithia Motors (LAD) and 1 Automotive (GPI) to benefit the most a potential sector re-rating. The

3、last time US Auto Dealership stocks traded near this low of a relative earnings multiple was during the beginning of the financial crisis, the US and auto industry were both reeling. Investor concerns today seem two-fold: (1) of a potential downturn in the or the auto industry from what would appear

4、 to be “as as it can get” levels; and (2) fear of the potential threat to dealership profits industry change in the areas of e-commerce, vehicle electrification, and autonomous/ride-share mobility. Relative to cyclical concerns, our own view is that US light vehicle SAAR is likely to moderate at a m

5、anageable rate for the foreseeable future. Relative to structural concerns, we acknowledge the pressure on margin increased price transparency and e-commerce but believe concerns are overblown, such as the trends toward electrification (could even be a tailwind) and autonomous mobility (seems furthe

6、r out and less complete than the presumes). Against this backdrop of relative comfort around cyclical and structural trends, our stock-picking framework emphasizes the potential for differentiated earnings growth via company-specific initiatives and balance sheet optionality (enabling accretive M&A

7、and/or share repurchases) while also monitoring company-specific actions and strategies to best navigate industry change. Our average Dec-19 ending price targets for the sector imply 10-15% upside at currentlevels.Our top pick is Overweight-rated Lithia Motors on confidence in managements ability to

8、 deliver against substantial targeted EBITDA improvements given a history of strong execution, and also because of its relatively greater balance sheet optionality. We rate 1 (GPI) as Overweight, a tactical call, on what we see as an unwarranted discount to sector valuation and upside to consensus e

9、stimates. We rate (ABG) Neutral, on above-average execution, ROIC, and balance sheet optionality, but also appropriate valuation. We rate Penske (PAG) Neutral, above-average downturn resiliency given greater business diversification, but also highest-in-sector leverage (less relative balance sheet o

10、ptionality). We rate AutoNation (AN) Underweight, on premium valuation despite the potential for heavy investments to weigh on earnings and relatively less downturn resiliency vs peers. Finally, we rate Sonic (SAH) Underweight, on softer execution history and less relative balance sheetoptionality.E

11、quity Ratings and Price TargetsAutos & Auto Parts Rajat Gupta AC(1-212) 622-6382 HYPERLINK mailto:rajat.gupta rajat.guptaRyan Brinkman(1-212) 622-6581 HYPERLINK mailto:ryan.j.brinkman ryan.j.brinkmanDaniel JWon(1-212)622-3221 HYPERLINK mailto:daniel.j.won daniel.j.wonJ.P. Morgan SecuritiesLLCCompany

12、TickerMkt Cap ($ mn)Price ($) Rat Curing PrevCur Price TaEnd Daterget PrevEnd DateLithia MotorsLAD US2,213.1587.97OW112.00Dec-19Group 1 AutomotiveGPI US1,254.3661.77OW77.00Dec-19Asbury AutomotiveABG US1,495.5271.90N82.00Dec-19Penske AutomotivePAG US3,796.9044.15N51.00Dec-19AutoNationAN US3,622.7239.

13、08UW40.00Dec-19Sonic AutomotiveSAH US679.0615.87UW14.00Dec-19Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 15 Feb 19.See page 232 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its re

14、search reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. HYPERLINK / Table of Contents HYPERLINK l _bookmar

15、k0 ExecutiveSummary4 HYPERLINK l _bookmark1 US Auto Dealership Sector Faces Real But Over-discounted Cyclical &StructuralHeadwinds4 HYPERLINK l _bookmark2 Dealers Operate via Four Business Segments: New Vehicle Sales (at Peak); Used Vehicle Sales (Growth Opportunity); HYPERLINK l _bookmark2 Finance

16、& Insurance (at Peak); and Parts & Service(UnderappreciatedStrength) HYPERLINK l _bookmark3 Stock Picks: Overweight LAD & GPI; Neutral ABG & PAG; Underweight AN&SAH8 HYPERLINK l _bookmark5 Industry Overview: Used Volume and Parts & Services Opportunity Key to Offsetting HYPERLINK l _bookmark5 Cyclic

17、al Concerns and StructuralMarginPressure12 HYPERLINK l _bookmark6 New Vehicle Outlook: See Modest Volume Downside; Gross MarginPressuresContinue13 HYPERLINK l _bookmark15 Used Vehicle Outlook: Potential Volume Upside; Gross MarginPressuresAccelerate24 HYPERLINK l _bookmark22 Finance & Insurance (“F&

18、I”) Outlook: Healthy TrendsMayModerate33 HYPERLINK l _bookmark25 Parts & Services Outlook: Healthy Trends Likely to Continue in the Near-term; PenetrationOpportunityKey41 HYPERLINK l _bookmark29 Expense Leverage: Company Specific Initiatives to Leverage SG&A Key to Growing EBITDA Amidst Lackluster H

19、YPERLINK l _bookmark29 Gross ProfitDollarOutlook HYPERLINK l _bookmark30 Floorplan Financing: Rising Interest Rates in a Peaking SAAR EnvironmentaHeadwind56 HYPERLINK l _bookmark31 Our Take on Industry Change: E-Commerce Trend to Continue; Electrification HYPERLINK l _bookmark31 Threat Overblown; Au

20、tonomous Ride Share A More Legitimate Concern, But Further HYPERLINK l _bookmark31 Out; SeeConsolidationOpportunity HYPERLINK l _bookmark32 E-Commerce Threat: Price Transparency and Consumer Preferences to FurtherPressure 58 HYPERLINK l _bookmark33 Autonomous + Ride Share: Legitimate Concerns, But I

21、mpact SeemsFurtherOut62 HYPERLINK l _bookmark34 Electrification Fears Seem Somewhat Overblown: See BEV Threat Longer-term, But Hybrids Could Present Near-term HYPERLINK l _bookmark34 Opportunity HYPERLINK l _bookmark35 Dealership Consolidation: See Consolidation Trends Accelerating Benefiting LargeP

22、ublicDealers67 HYPERLINK l _bookmark36 Downturn Analysis: Dealerships Better Positioned For the Next Downturn Given HYPERLINK l _bookmark36 Higher Parts & Service Mix, Better Used to New Ratio andLowerLeverage HYPERLINK l _bookmark37 The Next Recession Is Unlikely to Be as Bad as 2008/200971 HYPERLI

23、NK l _bookmark38 The Last Downturn: Looking Back at Dealer Performance in 2008/200973 HYPERLINK l _bookmark39 This Time Will Be Different for Dealers: Greater Reliance on Less Cyclical Parts & Services; Higher Used-to-New HYPERLINK l _bookmark39 Vehicle Ratio; and Lower Balance Sheet Leverage vs. 20

24、08/2009 HYPERLINK l _bookmark41 Valuation and Stock Selection: See Some Re-rating Potential for the Sector; OW on HYPERLINK l _bookmark41 LAD and GPI; N on ABG and PAG; UW on ANandSAH HYPERLINK l _bookmark42 Auto Dealership Valuation LowestinDecades82 HYPERLINK l _bookmark43 Some Multiple Compressio

25、n Clearly Deserved, Yet the Extent Seems Overdone Given Our Take Industry Change HYPERLINK l _bookmark43 andDownturnPositioning HYPERLINK l _bookmark44 Our Approach to Stock Selection: J.P. Morgan Auto DealershipsAnalyticalScorecard86 HYPERLINK l _bookmark49 LithiaMotors(LAD)94 HYPERLINK l _bookmark

26、50 Risks to Rating andPriceTarget97 HYPERLINK l _bookmark51 CompanyDescription98 HYPERLINK l _bookmark52 FinancialOutlook105 HYPERLINK l _bookmark53 Valuation111 HYPERLINK l _bookmark54 112 HYPERLINK l _bookmark55 Group 1Automotive(GPI)115 HYPERLINK l _bookmark56 Risks to Rating andPriceTarget117 HY

27、PERLINK l _bookmark57 CompanyDescription118 HYPERLINK l _bookmark58 FinancialOutlook125 HYPERLINK l _bookmark59 Valuation131 HYPERLINK l _bookmark60 132 HYPERLINK l _bookmark61 AsburyAutomotive(ABG)135 HYPERLINK l _bookmark62 Risks to Rating andPriceTarget137 HYPERLINK l _bookmark63 CompanyDescripti

28、on138 HYPERLINK l _bookmark64 FinancialOutlook145 HYPERLINK l _bookmark65 Valuation150 HYPERLINK l _bookmark66 152 HYPERLINK l _bookmark67 Penske AutomotiveGroup(PAG)155 HYPERLINK l _bookmark68 Risks to Rating andPriceTarget157 HYPERLINK l _bookmark69 CompanyDescription158 HYPERLINK l _bookmark70 Fi

29、nancialOutlook166 HYPERLINK l _bookmark71 Valuation173 HYPERLINK l _bookmark72 174 HYPERLINK l _bookmark73 AutoNation(AN)177 HYPERLINK l _bookmark74 Risks to Rating andPriceTarget180 HYPERLINK l _bookmark75 CompanyDescription180 HYPERLINK l _bookmark76 FinancialOutlook187 HYPERLINK l _bookmark77 Val

30、uation194 HYPERLINK l _bookmark78 195 HYPERLINK l _bookmark79 SonicAutomotive(SAH)198 HYPERLINK l _bookmark80 Risks to Rating andPriceTarget200 HYPERLINK l _bookmark81 CompanyDescription200 HYPERLINK l _bookmark82 FinancialOutlook208 HYPERLINK l _bookmark83 Valuation215 HYPERLINK l _bookmark84 217 H

31、YPERLINK l _bookmark85 Investment Thesis, Valuationand Risks220Executive SummaryUS Auto Dealership Sector Faces Real But Over-discounted Cyclical & Structural HeadwindsWe initiate coverage on the US Auto Dealership sector with a balanced view on the industry but a more constructive view on the stock

32、s, acknowledging various cyclical and structural industry headwinds, but at the same time believing near decade-low valuations suggest an over-discounting of these trends by investorsWe recommend Overweight-rated Lithia Motors (LAD) and Group 1 Automotive (GPI) to benefit from a potential sector re-

33、rating. The last time US Auto Dealership stocks traded near this low a level of earnings was during the financial when the US economy and auto industry were both reeling. Investor concerns today seem two-fold: (1) fear of a potential downturn in the economy or the auto industry from what would appea

34、r to be “as good as it can get” levels; and (2) fear of the potential threat to dealership profits from industry change in the areas of e-commerce, vehicle electrification, and autonomous mobility. Relative to cyclical concerns, our own view is that US light vehicle SAAR is likely to moderate at a m

35、anageable rate for the foreseeable future. Relative to structural concerns, we acknowledge the pressure on margin from increased price transparency and e-commerce but believe other concerns are overblown, such as the trends toward electrification (could even be a tailwind) and autonomous mobility (s

36、eems further out and likely less complete than the market presumes). And there are opportunities also, such as participating in industry consolidation and further diversifying away from new vehicle sales by driving less cyclical used vehicle and parts & service volume. Against this backdrop of relat

37、ively greater comfort around cyclical and structural trends, our stock-picking framework emphasizes the potential for differentiated earnings growth via specific initiatives and balance sheet optionality (enabling accretive M&A and/or share repurchases) while also keeping an eye on company-specific

38、actions and strategies to best navigate industrychange.US auto sales are currently healthy, with few reasons to fear an imminent downturn we expect sales to moderate as the cycle ages, but at a rate likely more manageable than the market presumesRelative to investor concerns regarding the cycle, our

39、 own view is that US light vehicle sales have indeed already peaked this cycle but are likely to moderate at a manageable rate for the foreseeable future. After peaking at 17.6 mn in 2016 (an all- time high), sales declined just -2% in 2017 to 17.2 mn before rising fractionally in 2018 to 17.3 mn. W

40、hile the modest decline in new vehicle sales from the levels attained in 2016 has garnered significant media and investor attention, we view the industry environment as not having appreciably softened, especially when considering that auto rental firms are widely acknowledged to have purchased too m

41、any vehicles in 2016 and an unusually lower number of vehicles in 2017; adjusted for this oscillation in rental car purchases, total sales are seen to have held steady for the past several years. And beyond the headline number, there has been an improvement in the mix of vehicles sold, with sales in

42、creasingly comprising higher transaction price Crossover Utility Vehicles (CUVs), Sport Utility Vehicles (SUVs), and pickup trucks relative to lower price passenger sedans. Indeed, Average Transaction Prices (ATPs) now stand at strong levels, suggesting strong underlying demand. An examination of ot

43、her industry metrics (e.g., loan performance, new vehicle inventories, used car prices, etc.) also indicates broad industry health. Auto sales are closely correlated with consumer confidence and employment, both ofwhich are at historically healthy levels, with the labor market proving particularly s

44、trong. We do expect sales will eventually slow as the cycle ages, modeling a -3% decline in 2019 to 16.75 mn, although from our conversations this would still suggest a more benign sales environment than most investors assume.When the next downturn in US light vehicle sales eventually does arrive, i

45、t is likely to prove more moderate than the last downturn, and perhaps more moderate than the average historical downturnWe believe the next downturn in US light vehicle sales is likely to be considerably more mild than the last downturn, for several reasons: (1) the financial crisis of 2008- 2009 r

46、epresented a deeper than typical contraction in economy activity but we expect the next economic downturn to be more typical of historical trends; (2) the financial crisis of 2008-2009 atypically interrupted the availability of automotive financing, with ABS markets closed for a time and the subprim

47、e market in particular impacted but given automotive credit in the last downturn acquitted itself well as an asset class, we do not expect a similar level of disruption in the future; and (3) because the downturn in auto sales was so steep in 2008-2009, given the aforementioned two factors, US light

48、 vehicle sales declined an unusually large -40% vs. the historical average of -23% peak-to-trough decline in auto sales during economic downturns this has contributed to a record age of vehicles on the road (12 years currently), suggesting less ability to delay purchases and potentially a less than

49、average peak-to-trough decline in an ordinary magnitude economic downturn.US vehicle dealership groups appear better positioned for the next downturn than investors imagine, and much better positioned than in the last downturn While we currently see few reasons to fear an imminent downturn, and when

50、 suchdownturn does arrive it is likely to prove shallower than the last downturn andperhaps compared to the average downturn, US vehicle dealership groups have worked to proactively positioned their businesses better to withstand downturns in new vehicle sales. Firstly, dealers have lower financial

51、leverage now than in the past (e.g., current sector average leverage of 3.5x net debt / LTM EBITDA vs. 5x in 2007, adjusted for op leases). Secondly, dealers are more diversified in terms of their split of less cyclical used vehicle vs. more cyclical new vehicle unit sales (e.g., current used vehicl

52、e to new vehicle ratio of 0.55x vs. 0.90 x in 2007). Thirdly, dealers are more diversified geographically than in the past, with firms such as LAD having expanded far beyond its historical roots in the Pacific Northwest and firms such as Penske and Group 1 having continued their overseas expansion,

53、which was more nascent prior. Finally, and perhaps most importantly, gross profit from least cyclical Parts & Service revenue accounts for 45% of sector average profitability today, up from 40% entering the last downturn whereas gross profit from new vehicle sales has correspondingly declined to jus

54、t 20% of the gross profit mix vs.27% prior (recall that in the last downturn, Parts & Service revenues declined just -6% on average vs. new vehicle retail -40%).Our take on structural industry change is that the trend toward e-commerce and resulting increased price transparency that has pressured ne

55、w and used vehicle gross margin will continue, but that the same time other structural concerns seem overblown (such as electrification) or further out (such as autonomous mobility)E-Commerce: Access to more information on the web regarding new and used vehicle inventory, pricing, and financing opti

56、ons has led to a more informed consumer and pressure on retail gross margin. New competitors aim to disrupt the market for used vehicles. Vehicle Electrification: Investors fear pressure on parts & service profits from the increased adoption of Battery Electric Vehicles (BEVs), which contain fewer p

57、arts and are less likely to require maintenance. However, we believe BEVs will be outsold for many years to come by more complex Hybrid Electric Vehicles (HEVs) and Plug-in Hybrid Electric Vehicles (PHEVs) possessing both batteries as well as internal combustion engines, likely representing a more t

58、han offsetting tailwind to parts and service revenue. Also helping is our expectation dealership groups will command an out-sized share of the market for servicing electric vehicles, given the required investment in training and equipment presents a barrier to entry for smaller competitors. Autonomo

59、us Mobility: Investors fear a transition away from individual vehicle ownership toward an autonomous mobility model, leading to fewer retail new vehicle sales. Any such transition strikes us as further out than the market presumes. One key takeaway from the 2019 J.P. Morgan “Tech Forum at CES” was t

60、hat the commercial roll-out of “Level 4/5” fully autonomous robo-taxis is likely to be delayed beyond earlier expectations. We also estimate that utilization of autonomous mobility services is likely to be concentrated in more densely populated urban areas, with much of the market still dominated by