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Investing.com - JPMorgan downgraded Asbury Automotive Group (NYSE:ABG) from Neutral to Underweight on Thursday, while lowering its price target to $225.00 from $235.00. The $4.88 billion market cap company, trading at a P/E ratio of 11.83, has shown revenue growth of 11.11% over the last twelve months.
The downgrade comes despite JPMorgan acknowledging Asbury’s "exemplary execution in cost management," particularly regarding disciplined selling, general and administrative (SG&A) expense control as gross profit per unit normalizes.
JPMorgan cited Asbury’s increased leverage from recent merger and acquisition activities as a key concern, along with execution risks related to several operational initiatives. The company’s debt-to-equity ratio of 1.33 reflects this elevated leverage, though InvestingPro maintains an overall "GOOD" financial health score of 2.72. Subscribers can access 12+ additional exclusive insights about ABG’s financial health.
Specific risks highlighted include the rollout of new dealer management system software across stores, continued expansion of Asbury’s captive warranty business, and integration challenges with the "sizable" Herb Chambers acquisition.
The firm indicated it would reconsider its rating upon seeing "a more favorable entry point" or evidence of improvement in same-store gross profit performance, particularly in the used vehicle segment, which JPMorgan notes has underperformed peers since 2019.
In other recent news, Asbury Automotive Group reported its first-quarter 2025 earnings, revealing an adjusted earnings per share (EPS) of $6.82, which surpassed analyst expectations of $6.66. However, the company faced a revenue shortfall, reporting $4.1 billion against the anticipated $4.35 billion. Asbury Automotive is actively pursuing expansion, with plans to acquire Herb Chambers Automotive Group, pending approval by the end of the second quarter. The company’s focus on innovation is evident with the ongoing rollout of its Techeon software, which aims to enhance operational efficiency.
Despite growth in new vehicle revenue, the company experienced a decline in used vehicle units. The parts and service segment, however, showed a 5% increase in gross profit, indicating strong operational performance. Analysts from firms like Stephens Inc. and JPMorgan have shown interest in the company’s strategic approach to managing tariff impacts and the integration of Techeon. Asbury Automotive remains committed to growth, with a projected capital expenditure of $250 million for 2025-2026. The company is also focusing on deleveraging in the next 18-24 months, expecting to generate $250-$275 million from pending divestitures.
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