3 Mid-Cap Auto Stocks to Buy Ahead of Earnings

The U.S. auto industry had another unusual year in 2021. The ongoing impacts of Covid-19 and global microchip shortages turned what was supposed to be a year of recovery into a wild ride for most auto dealerships.

Those that were able to secure precious supplies of semiconductors, steel, and even tires rebounded well. Others that lost out on the auto production supply derby suffered another rough year.

Looking ahead to 2022, some of the same challenges may be around for a while. The good news is that they are expected to subside as the year rolls on. The even better news is that underlying consumer demand for both new and used vehicles remains strong in the pandemic economy. The perceived safety and flexibility of owning a car or truck in a period of mass flight cancellations is driving many Americans to bolster their personal transportation fleet.

As fourth-quarter earnings season rolls on, we’ll learn more about what went right and wrong at the tail end of the auto industry’s year. More importantly, we’ll find out which companies are feeling good about 2022.

These are three mid-cap auto retailers that are likely to be in the driver’s seat for a strong year.

Will Lithia Motors Beat Q4 Earnings?

Lithia Motors (NYSE:LAD) reports fourth-quarter and full-year results before the opening on February 9^th. The consensus estimate for Q4 earnings per share (EPS) is $10.14 which would represent 86% year-over-year growth.

The diversified auto dealer is coming off an impressive third quarter in which EPS of $11.21 trounced the Street’s forecast and fueled the stock’s run above $350. Since then, however, Lithia Motors has been hampered by industry-wide concerns over lingering chip shortages and the emergence of online auto retailers.

Yet there’s reason to believe Lithia will exceed quarterly expectations again and build off a strong 2021 performance. Sales are forecast to rise 14% this year thanks to improving inventories at the company’s 209 locations and an emerging e-commerce presence of its own.  

Based on projections for 2021 earnings, Lithia Motors has a P/E ratio below 8x. Look for a positive Q4 earnings surprise and bright 2022 outlook to push this valuation into another gear.

Will Penske Automotive Group Stock Go Up?

Penske Automotive Group (NYSE:PAG) is a familiar name to many investors who have been in the auto retail business for more than 30 years and roots that go back to the days when Roger Penske burst on the U.S. transportation scene.

Lately, it has benefitted from a transportation revival of another sort. As North America’s largest Freightliner dealer, Penske Automotive Group’s profits took off this year amid elevated trucking activity.

Don’t be mistaken though, a sharp rebound in Penske’s auto retail business is leading the way. Turbocharged demand for its most premium vehicle lineup has the company on track to deliver 26% revenue growth and more than double its EPS in 2021.

On February 9^th, we’ll get the final say on Penske’s full-year performance. After recording EPS of $4.47 in each of the last two quarters, the bar is set high for Q4. Not to worry. Based on the momentum in the business, a sixth consecutive quarterly earnings beat is likely. This along with a favorable 2022 view could drive the stock to fresh record highs.

When Does Group 1 Automotive Report?

Group 1 Automotive, Inc. (NYSE:GPI) is one of the country’s top auto retailers but also has a solid presence in the U.K. and Brazil. Like other dealers, the company’s new vehicle sales growth has been anemic due to the global chip shortages. On the other hand, its used vehicle business is thriving with car buyers clamoring to get their hands on pre-owned wheels in the absence of sufficient new car inventories.

Last quarter, Group 1 Automotive’s used retail and wholesale revenues were up 44% and 26%, respectively, and combined to account for nearly 40% of total revenue. By comparison, they accounted for approximately 30% in 2020 and a smaller percentage pre-pandemic.

When Group 1 reports fourth-quarter results before the market opens on February 10^th, the Street will be looking for EPS of $9.07. The anticipated 60% year-over-year growth is expected to be driven by reopened dealerships, but also a stronger omnichannel sales model and focus on cost management.

With $1.3 billion of long-term debt on the books, Group 1 still has work to do to improve its balance sheet. Yet as the industry continues to recover and the availability of new vehicles improves, cash flow should get better. Long-term investors willing to ride out a bumpy start to the year stand to see some significant horsepower as the current 5x P/E expands.