Citi sets Asbury Automotive stock Neutral with $236 target

On Wednesday, Citi initiated coverage on Asbury Automotive Group (NYSE:ABG) with a Neutral rating and set a price target of $236.00. The stock currently trades at $232.73, with a price-to-earnings ratio of 10.32x. According to InvestingPro data, the company maintains a "GOOD" overall financial health score of 2.75, suggesting solid operational performance. The firm highlighted Asbury’s recent acquisition of Herb Chambers in Boston, which was announced in February and is expected to close in late second quarter of 2025. The acquisition, priced at $1.34 billion, is estimated to add $3 billion in annual revenue to Asbury, representing a 17% increase in the company’s 2024 revenue, and approximately $150 million in EBITDA. This expansion builds upon Asbury’s impressive 16.12% revenue growth over the last twelve months, as reported by InvestingPro, which offers detailed analysis of over 1,400 US stocks through comprehensive Pro Research Reports.

Asbury Automotive has been one of the most aggressive companies in its peer group in terms of acquisitions over the past five years, spending over $6 billion and more than doubling the company’s size. The acquisition strategy has led to a doubling of revenue since 2021. Despite successful integration of acquired stores, the firm notes that Asbury’s capital spending has increased fivefold and execution risk remains a factor.

Citi’s analysis indicates that Asbury plans to fund the Herb Chambers acquisition through current credit facilities, mortgage proceeds, and cash. This approach is expected to push the company’s debt metrics to the highest levels since 2010, excluding the COVID-19 period. Consequently, this may limit Asbury’s ability to pursue further acquisitions or return cash to shareholders.

In terms of financial metrics, between 2015 and 2019, Asbury was valued at 7.3x trailing income on an EV/EBITDA basis, 10.1x on a P/E basis, and 15.2x using EV/FCF. Current metrics from InvestingPro show an EV/EBITDA of 8.55x and a debt-to-equity ratio of 1.51. Citi points out that valuation multiples for the dealership began to normalize in 2024 as performance reflected a slowdown in the rate of decline of variable gross performance. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading above its intrinsic value. The firm also suggests that an expansion in the group multiple is likely once the tariff crises are resolved.

The $236 price target set by Citi is based on the low end of their multiple range and averages all three valuation metrics. However, the firm’s estimates do not include the potential impact from the Herb Chambers transaction.

In other recent news, Asbury Automotive Group has reported impressive financial results for the fourth quarter of 2024, surpassing market expectations. The company’s earnings per share (EPS) reached $7.26, significantly exceeding the forecast of $6.08, while revenue totaled $4.5 billion, surpassing the projected $4.18 billion. This strong performance reflects a 15% year-over-year increase in revenue, driven by strategic investments and operational efficiency. In addition to financial achievements, Asbury Automotive has entered into a definitive agreement to acquire The Herb Chambers Companies, a prominent dealership group in New England. This acquisition, valued at $1.34 billion, is expected to close by the end of the second quarter of 2025 and aligns with Asbury’s strategy to enhance revenue and profitability. Furthermore, Asbury Automotive has appointed Daniel E. Clara as the new Chief Operating Officer, effective February 17, 2025, to oversee development and innovation teams. Clara’s promotion is part of Asbury’s broader strategy to focus on guest-centric growth. These developments underscore Asbury’s commitment to expanding its market presence and operational capabilities.

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