3. Asbury Automotive Group, Inc. (NYSE:ABG)
Abrams Capital Management Stake: $320,062,000
Percentage of Abrams Capital Management’s Portfolio: 9.22%
Number of Hedge Fund Holders: 27
Asbury Automotive Group, Inc. (NYSE:ABG) operates an automotive retailer in the United States. The company provides various automotive products and services, such as new and used vehicles, vehicle repair and maintenance, replacement parts, and accident repair services. As of December 31, 2021, Asbury Automotive Group, Inc. owned and operated 205 new vehicle franchises in the United States and 35 collision facilities. David Abrams kept his stake unchanged in Asbury Automotive Group, Inc. (NYSE:ABG) during Q3 2022. The holding in the company amounted to a value of $320 million at the end of the quarter.
On October 06, 2022, Rajat Gupta, an analyst at JPMorgan, reduced his price target on Asbury Automotive Group, Inc. (NYSE:ABG) to $185. The analyst currently has a Neutral rating on the stock and believes the macro slowdown is going to weigh on the company’s results in the near term.
Here is what LRT Capital Management has to say about Asbury Automotive Group, Inc. (NYSE:ABG) in its Q1 2022 investor letter:
Asbury Automotive Group is one of the largest automotive retailers in the United States. It operates 90 dealerships consisting of 112 franchises and 25 collision repair centers. The company’s stores offer new and used vehicles, parts, and service, as well as finance and insurance (F&I) products. Franchise agreements controlled by automotive manufactures and state laws create an environment of tightly controlled market entry and restricted competition.
The dealership industry is highly fragmented with 93.5% of dealers having only between 1-5 locations according to data from 2020. In fact, dealers with over 50 locations account for only 0.1% of the industry – a testament to the huge opportunity for consolidation that lies ahead. Industry dynamics, including the rising complexity of automobiles and the need for omnichannel distribution are favoring better capitalized and larger dealer groups. We believe Asbury Automotive Group has several distinct advantages, particularly its highly profitable parts and service business, its overexposure to the luxury vehicle business, which carries the best margins, and its Clicklane omnichannel strategy. Asbury’s management has also been acting in the best interests of its shareholders by allocating capital towards acquiring dealerships to aggressively expand its business, and occasionally repurchasing stock when attractive acquisitions targets could not be found.
ABG is not a fast-growing SaaS business, but when paying a valuation of ¼ of the overall stock market, one does not need to make heroic assumptions about the future to enjoy strong returns as shareholders. We believe that over the next several years, Asbury will continue to acquire dealerships, occasionally buy back stock and invest to improve its digital shopping experience. We wrote about Asbury in detail in our August 2021 Investor Letter.
