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3 Hard-Hit Stocks too Cheap to Ignore: Penske, USANA, and AutoNation

The stock market has remained under pressure amid investors’ concerns about rising commodity prices due to the war in Ukraine and the Fed’s hawkish monetary policy pivot to combat inflation. The market’s turbulence has led several fundamentally sound stocks—including Penske (PAG), USANA Health (USNA), and AutoNation (AN)—to plummet in valuation. So, we think these stocks look undervalued at their current price levels and could be solid bets now. Let’s discuss.

The stock market has been on a wild ride due to inflation concerns, rising commodity prices amid the Russia-Ukraine war, and the Federal Reserve’s planned interest rate increases. The economy could be susceptible to an inflation-induced recession with prices increasing at a pace not seen in the past 40 years. Furthermore, investors are awaiting March’s consumer price index today, which is expected to show an 8.4% annual increase in prices, the highest level since December 1981, according to economists polled by Dow Jones. However, futures on the Dow Jones Industrial Average gained 20 points or 0.1%, while S&P 500 futures gained 0.1%, and Nasdaq 100 futures also climbed 0.1%.

“The charts as interpreted by Mark Sebastian say we’re currently in the middle of a short-term volatility spike, and once it’s over, we’re going to return to the post-March bottom environment where stocks can easily go higher,” CNBC’s Jim Cramer said last week.

The market's volatility has led to a decline in the valuation of several fundamentally sound stocks. So, we think Penske Automotive Group, Inc. (PAG), USANA Health Sciences, Inc. (USNA), and AutoNation, Inc. (AN), which look undervalued at their current price levels, could be solid bets now.

Penske Automotive Group, Inc. (PAG)

PAG in Bloomfield Hills, Mich., is a diversified transportation services company that runs automotive and commercial truck dealerships through its four segments–Retail Automotive; Retail Commercial Truck; Other; and Non-Automotive Investments. 

PAG this month announced that its subsidiary Sytner Group had acquired three BMW MINI dealerships and a collision center in the U.K. The acquisitions should make PAG the largest retail partner of BMW in the U.K. and is expected to provide the company an opportunity to scale its business operations.

In March, the company announced the acquisition of Team Truck Centres, a retailer of Freightliner and Western Star commercial trucks, in Ontario, Canada. The acquisition is expected to scale the company’s Premier Truck Group subsidiary and generate approximately $150 million in annualized revenue.

In terms of its forward non-GAAP P/E, PAG is currently trading at 6.41x, which is 47.7% lower than the 12.25x industry average. And its 0.50 forward EV/Sales multiple is 54.5% lower than the 1.11 industry average.

PAG’s revenue increased 8.3% from the prior-year quarter to $6.30 billion in its  fiscal fourth quarter, ended Dec. 31, 2021. Its gross profit for the quarter was  $1.18 billion, reflecting a 31.2% increase year-over-year, while its net income attributable to common shareholders stood at $311.30 million, up 55.5% year-over-year. Its income per share was $3.99, up 60.2% from the previous-year quarter.

PAG’s revenue for the quarter ended March 31, 2022, is expected to be $6.31 billion, indicating 9.3% year-over-year growth. The company’s EPS is expected to increase 59.9% year-over-year to $3.61 for the same quarter. PAG also beat the consensus EPS estimates in the trailing four quarters.

PAG has gained 13.7% in price over the past year and 20.7% over the past nine months to close the last trading session at $94.89.

PAG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which translates to Strong Buy in our POWR ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

PAG also has an A grade in Value and a B in Growth. It is ranked #2 of 24 stocks in the Auto Dealers & Rentals industry.

Beyond what is stated above, we have also rated PAG for Momentum, Quality, Stability, and Sentiment. Get all the PAG ratings here.

USANA Health Sciences, Inc. (USNA)

USNA in  Salt Lake City, Utah, develops, manufactures, and sells science-based nutritional and personal care products in  Asia Pacific, the Americas, Europe, as well as online.

In February, the University of Miami Athletics announced a new partnership with USNA to provide student-athletes with the company’s high-quality, NSF-tested nutritional products. The company expects this to create a strong presence for  its products throughout football and basketball seasons and thus be strategically beneficial for the company.

Its 7.55 forward EV/EBITDA multiple  is 38.7% lower than the 12.32 industry average. In terms of its forward EV/Sales, USNA is currently trading at 1.17x, which is 35.9% lower than the 1.82x industry average.

USNA’s net sales increased 4.6% year-over-year to $1.19 billion in its fiscal year ended Jan.1, 2022, while its gross profit grew 4.6% from its year-ago value to $968.57 million.

The Street expects USNA’s EPS for its fiscal third quarter ending Sept. 30, 2022, to improve 7% year-over-year to $1.46. The $294.34 million  consensus revenue estimate for the same period represents a 7.3% increase year-over-year.

The stock has gained marginally intraday to close the last trading session at $81.26.

It is no surprise that USNA has an overall A rating, which equates to Strong Buy in our POWR Ratings system.

USNA also has an A grade in Value and Quality and a B in Stability. Among the eight stocks in the A-rated Medical – Consumer Goods industry, USNA is ranked #2.

In addition to the POWR Rating grades I have just highlighted, you can see the USNA’s growth, Momentum, and sentiment ratings here.

Click here to checkout our Healthcare Sector Report for 2022

AutoNation, Inc. (AN)

AN operates as an automotive retailer in the United States through its three segments Domestic; Import; and Premium Luxury. The company is headquartered in Fort Lauderdale, Fla.

On February 23, AN priced $700 million of senior unsecured notes due 2032 at 3.850%. AN intends to use the offering’s net proceeds for general corporate purposes, including reducing borrowings under its commercial paper program and/or the revolving credit facility under its credit agreement, strategic initiatives, acquisitions, and share repurchases.

In terms of its forward GAAP P/E, AN is currently trading at 5.08x, which is 62.2% lower than the 13.45x industry average. Its 0.41 forward EV/Sales multiple is 63.2% lower than the 1.11 industry average. 1.11.

For its fiscal fourth quarter, ended Dec. 31, 2021, AN’s revenue increased 13.8% year-over-year to $6.58 billion. Its non-GAAP operating income has grown 68.4% from its year-ago value to $521.40 million, while the non-GAAP net income came in at $380 million, reflecting a 78.3% increase year-over-year. Its non-GAAP EPS for the quarter was $5.76, up 137% from the previous-year quarter.

The $5.14 consensus EPS estimate for its fiscal first quarter, ended March 31, 2022, represents an 84.3% improvement year-over-year. And the $6.48 billion consensus revenue estimate  for the same quarter represents a 9.8% increase from the same period last year. Also, it has an impressive earnings surprise history; it topped the Street’s EPS estimates in each of the trailing four quarters.

AN’s shares have gained 12.2% in price over the past year to close the last trading session at $104.45.

AN’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our POWR Ratings system.

The company also has an A grade in Value and a B in Growth and Quality. The stock is ranked #1 in the Auto Dealers and Rentals industry.

To get AN’s ratings for Momentum, Stability, and Sentiment, click here.

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PAG shares were trading at $97.76 per share on Tuesday morning, up $2.87 (+3.02%). Year-to-date, PAG has declined -8.40%, versus a -6.01% rise in the benchmark S&P 500 index during the same period.

About the Author: Komal Bhattar

Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.


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