$173.00
$392.00
bear $173.00
base $260.00
bull $392.00
margin of safety $150.00
market price* $170.05
Asbury Automotive Group is one of the largest franchised new-car dealership groups in the United States. At mid-2026 it ran 158 dealerships selling 34 brands, plus 37 collision centers and Total Care Auto, its in-house finance-and-insurance products business. It earns money four ways: new vehicles, used vehicles, arranging financing and service contracts, and parts and service. Parts and service is the largest and steadiest part, at about half of gross profit. Asbury has grown mainly through a few large, debt-funded acquisitions: Larry H. Miller Dealerships (December 2021), the Koons dealerships (2023) and The Herb Chambers Companies in New England (July 2025). It has also been selling weaker stores. What changed in this review. Our earlier estimate made two mistakes, and both made it too optimistic. First, it took today's new-car profits as normal. In 2019 Asbury earned 4.1% gross margin on each new vehicle it sold, about $1,500 a car. That rose to 6.5% in 2025 and was $3,124 a car (about 5.9%) in the second quarter of 2026, still falling about 13% a year. New-vehicle inventories are still below pre-pandemic levels, so there is no evidence that the remaining excess margin is permanent. Second, our earlier cases ran at today's level indefinitely with almost no recessions. Car retailing is cyclical. From 2007 to 2009 Asbury's revenue fell by about a third and its pre-tax profit roughly halved, and it took until 2012 to recover. Postwar recessions have arrived roughly every seven to eight years. This review builds each case from the business's own unit economics and includes recurring downturns. How we measure earnings. We start from operating cash flow. We remove short-term swings in inventory and payables, then subtract stock-based pay, the capital spending needed to keep the stores running, the value lost on service-loaner cars, and rent on leased stores. Interest on the floor-plan loans that finance vehicle inventory stays in as an operating cost. Write-downs of acquired franchise rights and goodwill are added back because they reflect money already spent. On that basis, owner earnings were $31.78 per share in 2023, $27.96 in 2024 and $24.06 in 2025. We value the business before its corporate lenders, then subtract the debt. Measured that way, the business produced about $823 million in 2023, $738 million in 2024 and $659 million in 2025. On first-half 2026 results, excluding the one-time costs of its dealership software conversion, it is running at about $570 million. What normal looks like. We kept parts and service, finance and insurance, and used vehicles at today's levels. Finance-and-insurance income is about 5.2% of vehicle revenue, below 2019's 5.6%, so it is not inflated. Used-vehicle margins (about 6.3%) are below 2019's 6.9%. New-vehicle margins are the line still above normal, and we bring them back to about 4.2% over two years. Selling and administrative costs return to about 68.5% of gross profit, close to the 68.4% Asbury ran at in 2019. In the first half of 2026 they were 67.2% excluding the software conversion. In a typical year this gives about $506 million of cash flow before corporate interest. As a cross-check, Asbury's 2017-2019 cash margin of about 3% on today's roughly $17 billion of revenue gives about $505 million. Recessions. We model a typical recession in one year as new-vehicle sales down 20%, used sales down 10%, profit per vehicle down 10%, parts and service down 5% and fixed costs trimmed 3%, followed by a year of partial recovery. That cuts annual cash flow by about a quarter. A severe, 2009-style recession (new sales down 35%) cuts it roughly in half. That roughly matches what happened to Asbury's earnings in 2009. Debt. On June 30, 2026 Asbury had $3.48 billion of borrowings. That includes $2.25 billion of fixed-rate senior notes: $405 million at 4.50% due March 2028, $800 million at 4.625% due November 2029, $445 million at 4.75% due March 2030 and $600 million at 5.00% due February 2032. The rest is mostly floating-rate real-estate loans, including a balloon payment due December 2026. Because the notes carry rates below 6% until they mature, the effective debt is about $3.39 billion, or $189 per share. The $1.84 billion of floor-plan loans is not subtracted because its interest is already charged in earnings and it turns over with the vehicle inventory. The company reported $966 million of liquidity at June 30, 2026. Growth we credit and leave out. We credit nothing for acquisitions. Asbury's deals have been few, large and debt-funded, and each is a bet, not a repeatable small step. We credit nothing for buybacks. In the base case, revenue and costs are held flat with no real growth. Base case: new-vehicle margins finish normalizing by 2028, the software conversion's one-time costs end as scheduled in fall 2026, a typical recession arrives in years four and five, and another follows every eight years. Cash flow runs about $535 million in year one, about $506 million in a normal year after that, and about $370 million in a recession year. The business is worth about $8.07 billion ($449 per share). After about $3.39 billion of effective debt ($189 per share), the shares are worth about $260. Bear case: new-vehicle margins overshoot to 3.8%, below 2019. The 2025 surge in warranty work ($226 million of gross profit, up 21%) fades back toward 2024's level. Selling and administrative costs stay near today's level as gross profit falls. A severe recession starts in year two, and typical ones follow every seven years. Cash flow falls to about $240 million in the trough, still about 1.3 times corporate interest, and settles near $433 million in normal years. That is within Asbury's 2016-2019 range measured against sales. The trough overlaps the March 2028 note maturity, and the senior notes are refinanced at about 7%. The business is worth about $6.64 billion ($369 per share) against about $3.53 billion owed ($196 per share), leaving about $173 per share. Bull case: new-vehicle margins settle at 5%, the software conversion delivers the cost savings management describes, used-vehicle volumes recover about 10% as off-lease supply returns, and parts and service grows about 2% a year for a decade, with costs rising about 1.2% a year alongside it. Typical recessions come every eight years, the first in year six. Normal-year cash flow climbs to about $675 million, roughly the 2025 level. The business is worth about $10.45 billion ($581 per share) against $3.39 billion of effective debt, leaving about $392 per share. Margin-of-safety price. The range runs from about $173 to $392, the business is cyclical, and debt is roughly as large as the shares are worth, so a wide margin is required. At about $150, the base case implies a 20% annual return if the base-case value is recognized within three years, and the bear-case value still sits above that price. What would make this wrong. On the downside: new-vehicle margins falling well below pre-pandemic levels, a lasting drop in parts-and-service demand as owners defer maintenance, or another large debt-funded acquisition that later has to be written down. On the upside: new-vehicle margins holding well above 2019 levels, which would mean part of today's excess profit is structural. The 2007-2012 figures come from a third-party data provider because those older filings were not available to us. They are used only to check the size of the recession cases, which are built from Asbury's current unit economics.