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Auto retailer stock valuations soar in 2020

INCLINE VILLAGE, Nev. - Perhaps not since the Great Recession has the auto retail industry had a challenging year as it did in 2020.

But amid all the turmoil in the industry, last year “ultimately ended as the most profitable year on record for dealers,” says Erin Kerrigan, founder and managing director of Kerrigan Advisors.

Just consider the stock valuations of the publicly traded groups. 

The strength in auto retail is evident in the December/year-end edition of The Kerrigan Index, which tracks valuation trends of the seven public auto retailers (Asbury Automotive Group, AutoNation, CarMax, Group 1 Automotive, Lithia Motors, Penske Automotive Group and Sonic Automotive).

For full-year 2020, the Kerrigan Index was up 29.65%, and for comparison sake, the S&P 500 Index climbed 16.26%, the company indicated.

Each of the component stocks within the Kerrigan Index reached an all-time record at some point during the year, the company said. Additionally, each showed year-over-year gains.

The most significant gain was at Lithia, which was up 127.18%. Next up was AutoNation, which climbed 41.34%, followed by Asbury (up 30.25%), Group 1 (up 28.99%) and Sonic (up 21.29%).

Penske climbed 17.08% and CarMax was up 7.24%.

“What’s really notable is that the auto retail stocks, and The Kerrigan Index, have traded at all-time highs throughout the final months of 2020. In spite of a historically crisis-driven and volatile year, the stocks are valued higher than ever before,” said Ryan Kerrigan, managing director of Kerrigan Advisors, in a release.

“Clearly, Wall Street is bullish on auto retail, and comfortable that it will continue to evolve on pace with technology and consumer behavior,” he said.

The Kerrigan Index certainly had some rollercoaster moments throughout the year. It declined 51.8% to its trough on March 18, then bounced back the following quarter. Eventually, values were approaching records in the third, the company said.

Kerrigan Advisors reported in its Third Quarter 2020 Blue Sky Report that dealership earnings climbed 94% in Q3.

“The rise in earnings helped to create an active buy/sell environment, with 186 transactions in the first nine months of 2020,” said Erin Kerrigan.

“COVID-19 or not, that’s a 15.5% increase over the first nine months of 2019,” Kerrigan continued in the release, with the firm attributing that data point to The Banks Report, Automotive News and its own research.

“Throughout the year, the market has rewarded retail competence, confidence, and proven retail processes. Despite being one of the toughest years in auto retail history, 2020 ultimately ended as the most profitable year on record for dealers,” she said.

And it was a year of a “comeback” that ultimately ended with the aforementioned stock gains for the seven public retailers.

“This was the ultimate comeback year, and auto dealerships were its comeback kids,” Erin Kerrigan said. “In a year of raging unpredictability — from smooth sailing to collapsing financial markets, closed doors to critical inventory supply shortages — auto retail stayed resilient and continued to prosper.”

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