The Kerrigan Index™ Broke Records for Auto Stock Valuations in 2020
After a volatile start to 2020, The Kerrigan Index out-performed the S&P and rose to all-time highs; all seven component companies hit record market capitalizations in 2020.
After a volatile start to 2020, The Kerrigan Index out-performed the S&P and rose to all-time highs; all seven component companies hit record market capitalizations in 2020.
5 min to read
INCLINE VILLAGE, Nevada – Kerrigan Advisors, a leading sell-side advisory firm and thought leader to auto dealers in the U.S., has released The Kerrigan Index™ for December 2020/Year in Review. Comprised of the seven publicly-traded auto retailers, the report demonstrates how a resilient auto retail industry weathered the uncertainty of COVID-19 and emerged stronger than ever with record-breaking stock valuations, profitability and sales increases. In December, The Kerrigan Index™ increased 5.22%, outpacing the S&P’s increase of 3.71% for the month. For the year, The Kerrigan Index™ increased almost 30%, handily outperforming the broader US stock market and hitting all-time highs in 2020.
“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. “Clearly, Wall Street is bullish on auto retail, and comfortable that it will continue to evolve on pace with technology and consumer behavior.”
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December 2020: Retail Valuations Stay Resilient As Sales Trend Back to 2019 Levels
US auto sales were down approximately 5% year over year in December, with the monthly SAAR estimated at 16.4 million – compared to 17.1 million in December 2019. That continues a steady climb back to prior year levels after dropping to a low of 8.74 million in April, as dealers faced closures and struggled to source inventory. In December, six of the seven Kerrigan Index stocks posted increases in December, led by Asbury Automotive Group (+29.23%) and AutoNation (+13.87%).
“For all the talk of auto industry disruption – and with some of the disruptors being valued at crazy multiples – confidence in the traditional automotive retail model was profoundly reinforced in December,” said Ryan Kerrigan.
2020 Year in Review: Unanticipated Volatility, Outstanding Performance
The year 2020 was comprised of three distinct segments: a strong start to the year, a challenging downturn, and a subsequent rebound that brought the industry back to record-setting performance. After the wild ride, The Kerrigan Index™ increased 29.65%, significantly outperforming the S&P 500 Index which increased only 16.26%, and all seven component stocks posted increases for the year, led by Lithia Motors (+127.18%), and AutoNation (+41.34%).
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“This was the ultimate comeback year, and auto dealerships were its comeback kids,” said Erin Kerrigan, Founder & Managing Director of Kerrigan Advisors. “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.”
From a low point on March 18th, when The Kerrigan Index dropped 51.8% from the start of the year, values began to rebound in the second quarter of 2020 and started to trade in all-time record territory in the third quarter. As reported in the Third Quarter 2020 Blue Sky Report® by Kerrigan Advisors, there was a 94% year-over-year rise in dealership earnings in the third quarter, driven by higher vehicle gross profit margins, increased operational efficiency, and price increases due to limited inventory.
“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[1]. 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.”
The Kerrigan Index™ Highlights
The December 2020/Year in Review Kerrigan Index provides a succinct overview of the auto retail industry as it moves beyond the volatility of this past year, and trends back to prior norms. The Kerrigan Index examines valuation trends of the seven public auto retailers, including CarMax, AutoNation, Penske Automotive Group, Lithia Motors, Group 1 Automotive, Asbury Automotive Group and Sonic Automotive, as well as reviews monthly performance data and retail sales trends.
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Notable Points Include
Each of the component stocks hit their all-time records in 2020: CarMax on 8/24/2020; Lithia Motors on 11/24/2020; AutoNation on 12/31/2020; Penske Automotive Group on 11/16/2020; Asbury Automotive Group on 12/17/2020; Group 1 Automotive on 10/21/2020; and Sonic Automotive on 8/12/2020.
The average new vehicle retail transaction price in December was a record $38,077, driven by demand for SUVs and trucks. (JD Power)
Consumer spending on new vehicles is expected to be $53.3 billion in December, up $10 billion from December 2019 – an all-time industry high. (JD Power)
Fleet sales are estimated to have declined 31% from December 2019 and are expected to represent 14% of total light vehicle sales, down from 19% a year ago. (JD Power)
Trucks and SUVs accounted for 79.1% of December’s new vehicle retail sales. (JD Power)
Average incentive spending per unit in December is expected to fall 12.7% to $4,014. (JD Power)
December incentive spending as a percentage of the average MSRP was 9.2%, down two percentage points from a year ago. (JD Power)
CarMax announced third quarter earnings were up 36% year-over-year on revenue which was up 8.2%.
Kerrigan Advisors monitors conditions in the buy/sell market and publishes an in-depth analysis each quarter in The Blue Sky Report®, which includes Kerrigan Advisors’ signature blue sky charts, multiples, and analysis for each franchise in the luxury and non-luxury segments. To download a preview of the report, click here. The firm also releases monthly The Kerrigan Index™ composed of the seven publicly-traded auto retail companies with operations focused on the US market. The Kerrigan Auto Retail Index is designed to track dealership valuation trends, while also providing key insights into factors influencing auto retail. To access The Kerrigan Index™, click here.
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