Target Prices for Auto Sector Stocks (GM, F, HTZ, CAR, ZIP, AN, KMX, CRMT, ORLY, AZO, PBY)

About three weeks ago, we looked at target prices and implied share price gains in a number of auto sector stocks. The quarterly earnings season had just begun, and hopes were pretty high for the sector. The stocks we considered were General Motors Co. (NYSE: GM), Ford Motor Co. (NYSE: GM), Hertz Global Holdings Inc. (NYSE: HTZ), Avis Budget Group Inc. (NYSE: CAR), Zipcar Inc. (NASDAQ: ZIP), AutoNation, Inc. (NYSE: AN), CarMax Inc. (NYSE: KMX), America’s Car-Mart, Inc. (NASDAQ: CRMT), O’Reilly Automotive, Inc. (NASDAQ: ORLY), AutoZone, Inc. (NYSE: AZO), and Pep Boys – Manny, Joe, and Jack (NYSE: PBY).

The automakers, General Motors and Ford, have remained essentially flat. GM’s report earlier today beat consensus estimates, but the outlook for the rest of the fourth quarter was lowered. If GM’s forecast comes true, the company could miss fourth quarter EPS estimates by as much as $0.50. The company earns profits only a bit better than Ford’s on sales that are about 10% higher. That means there are still costs to wring out of GM’s manufacturing. And the company’s China sales are not growing at the pace they were a year ago either.

GM’s target price remains at $42.00, which implies an 83% upside potential. Ford’s target price also remained the same, at $16, for an implied gain of 43% above today’s price. Neither target price is realistic in today’s economy.

Among the car rental companies, both Avis and Zipcar have had target prices cuts. Avis now has a target price of $24.50, down from $27 on October 20th. The potential upside has dropped from 133% to 87%.

The current share prices at Hertz and Avis are 12% and 13% higher, respectively, than they were on October 20th. Hertz’s implied gain at today’s stock price is 81%, and Avis’s is 87%. It is impossible to imagine a scenario in which either company makes a gain of that size. Far more likely are further target price cuts.

At Zipcar, the target price has dropped from $31.25 to $30.50, and upside potential has fallen from 80% to a shade above 70%. The company’s forward P/E also fell from an outrageous 273 to a more modest 149. Maybe someday the number will return to reality. Until then, target price cuts could be expected.

Among the auto dealerships, AutoNation got a boost to its median target price, from $32 to $32.50. The stock is trading today at $34.43, about 6% above its target price. But it’s share price is down from $37.06, a drop of about -7%. AutoNation reported a 6% sales gain year-over-year in October, with the biggest gain in its luxury car sales, which were up 27%.

Both CarMax and Car-Mart are trading higher than they were on October 20th, but there has been no change to the target price for either company. Car-Mart’s current price is only 11% below its target price, setting the stage for a boost if the company posts good numbers at its earnings report next week.

The largest change in the auto sector stocks we covered in October came in the parts suppliers group. O’Reilly’s median target price was raised from $68 to $80, and the shares are trading today at $77.74, a scant 3% below the new target. Shares posted a new high today at $77.94, on a day when the markets are down more than -2%.

Neither AutoZone nor Pep Boys was able to match that, as both have put up new 52-week lows since our October report.

All data from Yahoo! Finance and current prices were gathered at about noon today.

Paul Ausick