Monday, July 09, 2007

Group 1 Auto (NYSE:GPI): Goldman adds GPI to Buy List!

- Goldman Sachs is adding Group 1 Auto (NYSE:GPI) to their Americas Buy List with a $48 tgt. According to the firm GPI offers the best combination of earnings growth opportunity and valuation in the auto retail sector. GPI is in cost-cutting mode, which fits their investment profile for auto dealers: they prefer companies that are working on margin maximization and typically avoid those that are aggressively investing in their businesses, as the market tends not to "pay up" for these investments. With easing earnings comparisons and the lowest P/E multiple in auto retail, they see significant relative outperformance vs. peers and the broader Hardlines group.

Catalyst: Group 1 is emerging from a period of substantial earnings misses and estimate cuts associated with lapsed expense control, tough year-ago comparisons as used car volumes got a significant boost in Gulf states following Hurricane Katrina, and difficult conditions in the housing-challenged California market. GSCO sees accelerating earnings growth as the company cycles far easier comparisons beginning in the second half.

Notablecalls: Must say I couldn't believe my eyes on Friday when I saw no interest whatsoever following the wonderful call by Morgan Stanley (scroll down). I blamed it on the shorts, as the stock was ruthlessly chopped down on open. Stuff likes this comes with the territory when there's a 20% short interest.

And today we have Goldman Sachs putting GPI on their Buy list. This is bound to put fire under the shorts. I continue to be positive on GPI here. The $40 leash stays.

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