Merrill Lynch: With Strong Car Sales, Car Dealers Have Huge Upside

When a company like General Motors Co. (NYSE: GM) is facing endless recalls, lawsuits and negative headlines, you might think car sales would be hurt. Not so. News released this past week shows that GM sold 2.5 million cars in the second quarter, the most since 2005. That being said, there are almost certainly winners outside of just GM. A new report from Merrill Lynch highlights the car dealerships as the likely winners.

Huge auto dealerships are now the norm, and massive quarterly sales of the top brands could very possibly drive huge earnings ahead. Merrill Lynch was very positive on Ford and GM, both of which are expected to report earnings soon. Still, the dealerships are the focus here for what Merrill Lynch thinks has the most upside for investors.

The analyst report projects that dealer results should see a lift from a number of sources in the second quarter. With an expected yearly pace of 16.5 million new cars sold, heightened recall activity, which is huge for parts and service departments, and continued strength in the used car market, the good times may just be starting for the dealers.

Here are the top dealership stocks rated Buy at Merrill Lynch that have not yet reported earnings.

ALSO READ: 10 Cars Americans Don’t Want to Buy

Asbury Automotive Group Inc. (NYSE: ABG) is one of the largest automotive retailers in the United States. Built through a combination of organic growth and a series of strategic acquisitions, Asbury currently operates 81 retail auto stores, encompassing 102 franchises for the sale and servicing of 29 different brands of American, European and Asian automobiles. The company reports second-quarter earnings July 22. The Merrill Lynch price target is $77. The Thomson/First Call consensus target is much lower at $66.20. Shares ended trading Friday at $71.15.

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