BancAmerica Robertson Stephens Expands Coverage on the Auto Retailing Industry
17 November 1997
BancAmerica Robertson Stephens Expands Coverage on the Auto Retailing Industry
SAN FRANCISCO, Nov. 17 -- BancAmerica Robertson Stephens
research analyst Jordan Hymowitz has published his first comprehensive report
on the auto retailing industry, "Auto Retailing -- the Consolidation Shifts
Into High Gear."
The auto retailing market is the largest retail business in the country
and is expected to be a $661 billion market in 1997, growing at a 3-5% CAGR.
Hymowitz estimates that the market exceeds $1 trillion if auto finance,
service and parts are included. Despite its size, auto retailing is the most
fragmented retail distribution business in the United States. The top 100
dealer groups in 1996 represented less than 10% of the vehicle sales market.
"With access to public capital and the need to be accountable to
shareholders, publicly traded auto retailers are professionalizing the
industry, vertically integrating into new businesses, and consolidating their
peers," said Hymowitz.
Hymowitz is bullish on this sector based on the following events, in the
past 12 months:
* Manufacturers' opposition to publicly traded dealerships has virtually
disappeared. Most major auto manufacturers have either embraced or resigned
themselves to widespread public ownership of their dealerships.
* Manufacturers' attempted consolidation has been unsuccessful.
Manufacturers will most likely recruit the assistance of publicly traded
dealer groups to reduce and restructure their dealer bodies.
* Auto superstores have moved beyond beta testing. The superstore concept
has been validated by sales trends and increasing customer traffic.
* Margins are improving as synergies are developing and operating costs
are being reduced. Hymowitz believes additional opportunities will develop as
dealership groups expand their local market share and nationwide presence.
* Used vehicle reconditioning/certification has become widespread.
Today's customers increasingly demand reconditioned used vehicles with
warranties.
* Brand identification is developing. By 1999, Hymowitz believes that
most major publicly traded dealer groups will fully incorporate their brand
into their acquired dealerships.
* A softening new and used vehicle sales market is making it increasingly
difficult for smaller/independent dealers to compete.
* Technology implementation raises the cost of success. Dealers must
invest in technology to compete efficiently in today's auto retailing
environment.
* Customer satisfaction has improved at publicly traded entities. More
than 95% of shoppers at both Auto Nation USA and CarMax stores report being
satisfied with their shopping experience.
Hymowitz covers four companies in the auto sector; Republic Industries,
Inc. (RII), CarMax Group (KMX), Lithia Motors, Inc. (LMTR) and United Auto
Group (UAG).
Hymowitz initiated coverage of Republic Industries with a Buy rating. "We
believe purchase of Republic Industries stock is the best option for investors
seeking to capitalize on the consolidation, integration, and professionalism
of the auto services sector," said Hymowitz. His current EPS estimates are
$0.70 for 1997 and $1.20 for 1998.
Lithia Motors is rated a Long Term Attractive. Hymowitz estimates the
company should earn $0.80 per share in FY97, and $1.05 in FY 98.
CarMax is the original used car superstore chain. It was spun-out from
Circuit City, which maintains at 77% ownership interest, in 1996 and currently
operates 12 superstores in six states. CarMax is rated a Market Performer and
sells for 70 times Hymowitz' fiscal year 2000 EPS estimate of $0.20.
Hymowitz downgraded United Auto Group to Market Underperform. Earnings
were disappointing company-wide.
BancAmerica Robertson Stephens is a leading international investment
banking firm, focused on emerging growth companies. The firm's 45 research
analysts cover over 500 companies.
For a copy of Hymowitz's research report, call 415-248-4610 or e-mail him
at jordan_hymowitz@rsco.com. For more information or to schedule an
interview, contact Cheryl Popp at 415-693-3506 or e-mail her at
cheryl_popp@rsco.com.
NOTE: The information contained herein is not a complete analysis of
every material fact respecting any company, industry or security. Although
opinions and estimates expressed herein reflect the current judgment of the
Firm, the information upon which such opinions and estimates are based is not
necessarily updated on a regular basis; when they are, the date of the change
in estimate will be noted. In addition, opinions and estimates are subject to
change without notice. This Report contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results described in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Investment Risks." BancAmerica Robertson Stephens, from
time to time performs corporate finance services for some companies described
herein and may occasionally possess material, nonpublic information regarding
such companies. This information is not used in the preparation of the
opinions and estimates herein. Facts and other information discussed have
been obtained from sources considered reliable but are not guaranteed.
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SOURCE BancAmerica Robertson Stephens