Which Car Dealership Stocks have the Strongest Earnings Trends?

Earnings trends are extremely important when evaluating stocks. At Wall St. Cheat Sheet, we view increasing earnings quarter-over-quarter as a simple way to gauge whether costs and the business model are stable. Then we like to analyze whether the company is outperforming peers in the sector. This is what we call the “E-Squared” investment analysis (‘E = Earnings Are Increasing Quarter-Over-Quarter’ + ‘E = Excellent Relative Performance Versus Peers and Sector’).

Stocks with improving earnings metrics are worthy of your extra attention. Click here to discover our CHEAT SHEET stock picks now!

Here’s your Cheat Sheet to how the top 5 car dealership stocks rank via earnings trends:

AutoNation Inc. (NYSE:AN): Current Price $44.17

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 13,240 10,670 12,460 13,830 15,670
Diluted EPS ($) -6.99 1.12 1.43 1.91 2.52

Smart annual numbers from AutoNation with a nice upward swing in 2012. We particularly like that sharp improvement in EPS..

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 3,678 3,657 3,904 3,934 4,174
Diluted EPS ($) 0.49 0.55 0.64 0.66 0.67

We’re also impressed with the sustained, quarter-over-quarter improving trend in the EPS. A solid candidate here…

KAR Auction Services, Inc. (NYSE:KAR): Current Price $20.96

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 1,771 1,736 1,823 1,886 1,963
Diluted EPS ($) -2.02 0.21 0.51 0.52 0.66

Great annual numbers from KAR too. We like that the EPS rises like a phoenix from a disastrous -$2.02 in 2008 to a decent +$0.66 in the latest year.

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Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 479.80 506.90 487.90 474.90 493.70
Diluted EPS ($) 0.11 0.19 0.17 0.14 0.16

In the quarterly numbers we note that EPS has been erratic but like the little improvement in the latest quarter. Kar stays in the reckoning…

Group 1 Automotive Inc. (NYSE:GPI): Current Price $60.91

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 5,654 4,526 5,509 6,080 7,476
Diluted EPS ($) -2.12 1.43 2.09 3.47 4.19

We see solid growth in both revenue and earnings in 2010 and later at Group 1.

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Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 1,626 1,665 1,896 1,977 1,939
Diluted EPS ($) 0.90 0.97 1.20 1.32 0.70

Unfortunately, the December 2012 quarter has been a let-down with the EPS number down by almost half. We drop Group 1 from this analysis…

Penske Automotive Group, Inc. (NYSE:PAG): Current Price $32.10

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 11,640 9,012 9,943 11,130 13,160
Diluted EPS ($) -4.47 0.83 1.18 1.94 2.05

We are impressed with the solid year-over-year growth in both the top-line and EPS in 2009 and later.

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Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 2,959 3,242 3,372 3,401 3,147
Diluted EPS ($) 0.53 0.52 0.54 0.45 0.54

Though the quarterly EPS number at Penske has mostly flat over these past five quarters, we keep the stock in focus because of the improvement in the latest quarter…

CarMax Inc. (NYSE:KMX): Current Price $43.99

Fiscal Year 2009 2010 2011 2012 2013
Revenue ($) in millions 6,974 7,470 8,976 10,000 10,960
Diluted EPS ($) 0.27 1.24 1.65 1.79 1.87

CarMax is reporting a solid upward march every year in sales and profits…

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Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Feb. 29, 2012 May. 31, 2012 Aug. 31, 2012 Nov. 30, 2012 Feb. 28, 2013
Revenue ($) in millions 2,476 2,774 2,758 2,602 2,828
Diluted EPS ($) 0.41 0.52 0.48 0.41 0.46

We note that EPS is a bit volatile but has improved in the February 2013 quarter. For that reason we will keep this stock on our watch list.

Conclusion

In this ”E-Squared” investment analysis of car dealership stock, we have no hesitation in nominating AutoNation (NYSE:AN) to the top spot because of its excellent and consistent record of earnings growth on both the annual and quarterly time frames.

“E = Earnings Are Increasing Quarter-Over-Quarter” is a core component of our successful CHEAT SHEET investing framework. Don’t waste another minute – click here to discover our CHEAT SHEET stock picks now!

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