Group 1 Automotive, Inc. (NYSE:GPI) — This small-cap owner of automobile dealerships, franchises and collision service centers in the U.S., the U.K. and Brazil has accumulated five years of revenue growth.
In late July, Standard & Poor’s retained a four-star “buy” rating on the stock and increased its 12-month price target to $84 from $75. Their 2016 earnings-per-share estimate of $7.60 — up from $3.91 in 2015 — still stands, and they project EPS of $8.60 for 2017.
A negative from Brexit in the U.K. hasn’t materialized, but there could be some pressure on sales if gasoline-at-the-pump prices increase. However, that too has not occurred.
With the average age of vehicles on the road at over 11 years old, auto sales should continue to improve. And S&P concedes that their earnings estimates may be conservative, since further acquisitions of dealerships in London and Brazil could increase revenues more than previously estimated.
An active share repurchase program and regular increases to its current dividend of 92 cents per year (1.5% dividend yield) are expected.
GPI topped in August 2015 at over $97 and sustained a sharp bear decline until July, when it broke above the resistance line and began to form a bullish consolidation between the 50- and 200-day moving averages.
High buy-side volume sustained the breakout, and yesterday buyers drove the stock to a close above its 200-day moving average at about $61. Immediate support is at the 50-day moving average at about $57.50.
The final confirmation of a major change in trend occurred yesterday when the MACD indicator flashed a clear buy signal.
Buy GPI at under $62 with a trading target of $75, for a trading objective of over 22%.