Chicago, IL – April 25, 2025 – Today, Zacks Equity Research discusses Lithia Motors, Inc. LAD, AutoNation, Inc. AN and Group 1 Automotive, Inc. GPI.
Industry: Auto - Retail
Link: https://www.zacks.com/commentary/2454553/3-stocks-to-watch-from-the-thriving-auto-retail-industry-despite-high-tariffs
Despite a turbulent tariff environment that engulfs the auto sector, prospects of the Zacks Auto Retail and Wholesale industry remain robust on the back of a diversified product mix and multiple income streams. Players like Lithia Motors, Inc., AutoNation, Inc. and Group 1 Automotive, Inc. continue to expand their market share and strengthen their offerings to reach a broader audience, thereby improving profitability.
The performance of the automotive sector relies on its retail and wholesale networks. Companies in the Zacks Auto Retail and Wholesale Sales industry handle various operations through dealerships and retail chains. These include selling new and used vehicles, light trucks and auto parts, providing repair and maintenance services and facilitating vehicle financing. As a consumer cyclical industry, its success is closely tied to economic conditions and business cycles. When disposable income is high, consumers and businesses are more likely to invest in big-ticket items, whereas tighter budgets lead to cuts in discretionary spending. Notably, the coronavirus pandemic has significantly reshaped the industry, driving a greater focus on e-commerce.
Multiple Income Streams Reduce Risk: The auto retailers have diversified product mix and multiple income streams, which reduce their risk profile and position them for long-term growth. These companies generate income from businesses, including used and new vehicle retail, finance, insurance, as well as automotive repair and maintenance. This ensures stability and consistent revenue generation, mitigating the impact of market fluctuations and economic downturns.
Strategic Acquisitions to Expand Market Share: Auto dealers are expanding into new markets through strategic acquisitions, which are helping them grow their market share and strengthen their offerings. Additionally, investing in digital platforms aligns with shifting consumer preferences toward online transactions. This digital strategy is enabling dealers to reach a broader audience, ultimately driving higher profitability and expanding their market footprint.
Higher Tariff to Make Vehicles Expensive: U.S. President Donald Trump will impose a 25% tariff on imported vehicles and auto parts. This move will lead to increased manufacturing costs for carmakers and potential disruptions in the supply chain. Per Goldman Sachs, the 25% tariff on imported vehicles could increase car prices by anywhere from $5,000 to $15,000, depending on the specific make and model.
As a result, new vehicle prices are likely to rise, prompting more consumers to consider used vehicles instead. The increased demand for used vehicles may also drive up their prices, which may discourage used-vehicle buyers. Rising vehicle prices are likely to take a hit on the top-line growth of new and used vehicle retailers.
The Zacks Auto Retail & Wholesale industry is part of the broader Zacks Auto-Tires-Trucks sector. The industry currently carries a Zacks Industry Rank #46, which places it in the top 19% of around 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential.
We will present a few stocks that you might consider adding to your watchlist. Before that, let’s discuss the industry’s recent stock market performance and valuation picture.
The Zacks Auto Retail & Whole Sales industry has outperformed the Zacks S&P 500 composite as well as the Auto, Tires and Truck sector over the past year. The industry has returned 8.8% over this period compared with the S&P 500’s growth of 5.2% and the sector's decline of 9.8%.
Since automotive companies are debt-laden, it makes sense to value them based on the enterprise value/earnings before interest tax depreciation and amortization (EV/EBITDA) ratio.
On the basis of the trailing 12-month EV/EBITDA, the industry is currently trading at 8.18X compared with the S&P 500’s 15.58X and the sector’s trailing 12-month EV/EBITDA of 14.97X.
Over the past five years, the industry has traded as high as 10.79X, as low as 4.78X and at a median of 7.13X.
Lithia: It is one of the leading automotive retailers of new and used vehicles, and related services in the United States. Lithia’s strategic acquisitions are significantly increasing its market share and enhancing its portfolio. Minority stake in Wheels, a leading fleet management company, presents transformative synergies between retail and fleet platforms. This investment supports a comprehensive mobility ecosystem, integrating digital solutions and creating strong customer retention, driving long-term profitability.
Skill in managing technician staffing and enhancing operational efficiency has placed it in a strong position to meet continued demand. The company achieved its original cost-saving plan of $200 million in the fourth quarter of 2024. In 2025, the company expects another $50-$70 million in interest cost savings.
LAD currently carries a Zacks Rank #3 (Hold) and has a Value Score of B. The Zacks Consensus Estimate for 2025 sales and EPS implies year-over-year growth of 7.02% and 15.19%, respectively. The consensus mark for LAD’s 2025 EPS has moved north by 7 cents over the past seven days.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AutoNation: It is one of the largest automotive retailers in the United States. Apart from retailing new and used vehicles, the company offers vehicle maintenance and repair services, vehicle parts, extended service contracts, vehicle protection products, and other aftermarket products. Its Finance division is improving in various aspects, including higher penetration in its stores, better profitability and lower delinquency rates.
It's expanding its presence in almost all franchise stores. Its after-sales gross profit margin has risen nearly 250 basis points since 2019. This growth reflects improved parts and labor rates, higher technician efficiency and increased high-value repair orders. The company expects its after-sales business to grow at a mid-single-digit rate annually.
AN currently carries a Zacks Rank #3 and has a Value Score of B. The Zacks Consensus Estimate for 2025 sales and EPS implies year-over-year growth of 0.96% and 4.35%, respectively.
Group 1: It is one of the leading automotive retailers in the world, with operations primarily located in the United States and the United Kingdom. Group 1’s acquisitions of dealerships and franchises to expand and optimize its portfolio are likely to boost the firm’s prospects. Its restructuring plan will help it improve overall operational efficiency and performance in the U.K. market.
The workforce realignment and strategic facility closures will streamline operations and reduce costs. Systems integration, despite initial disruptions, will create a more unified and efficient dealer management system.
GPI currently carries a Zacks Rank #3 and has a Value Score of B. The Zacks Consensus Estimate for 2025 sales and EPS implies year-over-year growth of 9.91% and 4.51%, respectively. GPI has surpassed estimates in two of the trailing four quarters and missed twice, the average earnings surprise being 3.02%.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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AutoNation, Inc. (AN) : Free Stock Analysis Report
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