Reviewing Penske Automotive Group (PAG) & CarMax (KMX)

Penske Automotive Group (NYSE: PAG) and CarMax (NYSE:KMX) are both retail/wholesale companies, but which is the better stock? We will contrast the two businesses based on the strength of their profitability, dividends, earnings, valuation, risk, analyst recommendations and institutional ownership.

Profitability

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This table compares Penske Automotive Group and CarMax’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Penske Automotive Group 2.87% 17.67% 3.74%
CarMax 3.88% 21.09% 4.02%

Institutional & Insider Ownership

41.3% of Penske Automotive Group shares are owned by institutional investors. 40.7% of Penske Automotive Group shares are owned by company insiders. Comparatively, 1.7% of CarMax shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Analyst Recommendations

This is a breakdown of current ratings and target prices for Penske Automotive Group and CarMax, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Penske Automotive Group 0 3 5 0 2.63
CarMax 0 5 13 0 2.72

Penske Automotive Group presently has a consensus price target of $55.29, indicating a potential upside of 24.01%. CarMax has a consensus price target of $78.50, indicating a potential upside of 24.77%. Given CarMax’s stronger consensus rating and higher possible upside, analysts clearly believe CarMax is more favorable than Penske Automotive Group.

Risk and Volatility

Penske Automotive Group has a beta of 1.47, meaning that its share price is 47% more volatile than the S&P 500. Comparatively, CarMax has a beta of 1.55, meaning that its share price is 55% more volatile than the S&P 500.

Valuation & Earnings

This table compares Penske Automotive Group and CarMax’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Penske Automotive Group $21.39 billion 0.18 $613.30 million $4.31 10.34
CarMax $17.12 billion 0.66 $664.11 million $3.70 17.00

CarMax has lower revenue, but higher earnings than Penske Automotive Group. Penske Automotive Group is trading at a lower price-to-earnings ratio than CarMax, indicating that it is currently the more affordable of the two stocks.

Dividends

Penske Automotive Group pays an annual dividend of $1.36 per share and has a dividend yield of 3.1%. CarMax does not pay a dividend. Penske Automotive Group pays out 31.6% of its earnings in the form of a dividend. Penske Automotive Group has raised its dividend for 7 consecutive years.

Summary

CarMax beats Penske Automotive Group on 11 of the 17 factors compared between the two stocks.

Penske Automotive Group Company Profile

Penske Automotive Group, Inc. operates as a transportation services company. The company operates through four segments: Retail Automotive, Retail Commercial Truck, Other, and Non-Automotive Investments. It operates automotive and commercial truck dealerships principally in the United States, Canada, and Western Europe; and distributes commercial vehicles, diesel engines, gas engines, power systems, and related parts and services primarily in Australia and New Zealand. The company engages in the sale of new and used motor vehicles of approximately 40 brands; and provision of vehicle services and collision repair services. In addition, it is involved in the sale and placement of third-party finance and insurance products, third-party extended service and maintenance contracts, and replacement and aftermarket automotive products. Further, the company distributes commercial vehicles and parts to a network of approximately 70 dealership locations, including 8 company-owned retail commercial vehicle dealerships. As of December 31, 2017, it operated 343 automotive retail franchises, of which 155 franchises are located in the United States; and 188 franchises are located outside of the United States primarily in the United Kingdom. The company also operated 20 dealerships locations of heavy and medium duty trucks, offering primarily Freightliner and Western Star branded trucks, as well as a range of used trucks, and services and parts. Penske Automotive Group, Inc. is headquartered in Bloomfield Hills, Michigan.

CarMax Company Profile

CarMax Inc., through its subsidiaries, operates as a retailer of used vehicles in the United States. The company operates in two segments, CarMax Sales Operations and CarMax Auto Finance. It offers customers a range of makes and models of used vehicles, including domestic and imported vehicles; sells vehicles that do not meet its retail standards to licensed dealers through on-site wholesale auctions; and provides extended protection plans to customers at the time of sale. The company also offers reconditioning and vehicle repair services; and provides financing alternatives for retail customers across a range of credit spectrum through its CarMax Auto Finance and arrangements with various financial institutions. In addition, it sells new vehicles under franchise agreements. As of December 21, 2017, the company operated 185 used car stores in 39 states. CarMax Inc. was founded in 1993 and is based in Richmond, Virginia.

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