S&P Raises Group 1's Outlook - Analyst Blog

By Zacks | October 04, 2012 AAA

Standard & Poor's (S&P) Ratings Services has upgraded its rating outlook on Group 1 Automotive Inc. (GPI) to Positive from Stable, based on the company's improved credit measures and possibility of further enhancement. However, the rating agency retained its corporate credit rating of "BB "and other related issue-level ratings on its debt.

The positive outlook suggests a possibility of upgrade from 'BB' rating to 'BB+' over the next year. The upgrade will be based on the improvement of the company's profitability and cash flows, better leverage and balance between its strategic and financial policies with the credit quality.

The company witnessed an improvement in credit measures on the back of higher vehicle sales and growth in credit market. The rating agency expects further improvement based on the company's flexible business model, focused financial policy and operating expertise.

Group 1, in the second quarter of 2012, registered a 21.4% increase in adjusted earnings per share to $1.25 from $1.03 in the corresponding quarter last year. The results surpassed the Zacks Consensus Estimate of $1.16. Profit escalated 20.1% to $29.7 million from $24.8 million in the year-ago quarter.

Total revenues went up 28.6% year over year to $1.9 billion in the quarter, owing to strong retail new vehicle and used vehicle unit sales. Revenues beat the Zacks Consensus Estimate of $1.7 billion.

Headquartered in Memorial City of Houston, Texas, Group 1 Automotive is one of the largest automotive retailers in the U.S., providing 31 automotive brands. It has 122 automotive dealerships, 159 franchises and 28 collision centers in the U.S. and the U.K.  The company offers new and used cars, light trucks and is also engaged in sales financing activities.

In addition, the company provides insurance contracts, maintenance and repair services along with vehicle parts to its customers. It competes with AutoNation Inc. (AN) and Penske Automotive Group Inc. (PAG). Currently, Group 1 retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating.

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