Morgan Stanley: Is Peak Auto Confirmed?

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Is 2018, or was 2017, finally the “peak auto” year? That question remains up for debate, and investors have to consider what it might mean if they are invested in the auto sector. A new set of ratings from Morgan Stanley has put many of the well-established car dealership companies under a dark cloud on another strong trading day for the Dow Jones industrials and S&P 500.

While Morgan Stanley sees consolidation ahead in the auto dealer industry, this is viewed as setting up something akin to mega-fleet managers. Still, this is now nine years into the auto cycle.

We have included some trading history and the Thomson Reuters consensus analyst price target on each ahead of the new targets being issued in the Morgan Stanley report.

Asbury Automotive Group Inc. (NYSE: ABG) was raised to Equal Weight from Underweight at Morgan Stanley, which also raised the price target to $71 from $63. Asbury shares previously closed at $72.40, but they were down 1.1% at $71.60 on Tuesday morning. The 52-week trading range is $49.10 to $76.50, and the previous consensus analyst target price was $75.86.

AutoNation Inc. (NYSE: AN) took a double-downgrade to Underweight from Overweight, and the price target also was cut to $44 from $57. AutoNation shares were at $50.48 ahead of the call, and they were down 4.4% at $48.25 in Tuesday’s late-morning session. The 52-week range is $38.59 to $62.02, and the prior consensus target price was $55.00.

CarMax Inc. (NYSE: KMX) was raised to Overweight from Underweight. After closing previously at $76.60, CarMax shares traded up 0.3% at$76.85 late Tuesday morning. The 52-week range is $57.05 to $81.67, and the consensus target price is $84.00.

Group 1 Automotive Inc. (NYSE: GPI) is now rated as Underperform, and it was trading lower after the car dealer saw its price target cut to $59 from $62 at Morgan Stanley as well. The shares were down 2.5% at $70.40 on Tuesday, in a 52-week range of $51.62 to $84.47 and with a prior consensus target price of $82.80.

Penske Automotive Group Inc. (NYSE: PAG) was maintained as Overweight, and Morgan Stanley raised its target price to $56 from $54. Penske closed at $50.39 on Monday, and shares were down 0.7% at $50.04 on Tuesday. The 52-week range is $38.33 to $54.83, and the consensus target price is $57.57.

Sonic Automotive Inc. (NYSE: SAH) was downgraded to Underweight from Overweight, and the price target was cut to $19 from $25. The shares were at $21.70 ahead of the call and were trading down 4.6% at $20.70 Tuesday morning. The 52-week range is $15.95 to $23.60. The consensus target price was $21.83.