$140.97
$261.99
bear $140.97
base $190.19
bull $261.99
margin of safety $135.00
market price* $212.42
Penske Automotive Group sells and services new and used vehicles through about 365 franchised dealerships, roughly 71% of the revenue from premium brands such as Mercedes-Benz, BMW, Audi, Porsche, Lexus and Land Rover. About 61% of dealership revenue comes from the United States and Puerto Rico and most of the rest from the United Kingdom, with smaller operations in Germany, Italy, Japan, Canada and Australia. It is also one of the largest Freightliner heavy-truck dealers in North America (Premier Truck Group), distributes commercial vehicles and engines in Australia and New Zealand, and owns 28.9% of Penske Transportation Solutions, a large truck leasing and logistics business. 2025 revenue was $31.8 billion. Service and parts is the largest source of dealership gross profit and is much steadier than vehicle sales. Penske Corporation and Mitsui together own about 73% of the shares and vote together on the board, so outside shareholders have little say. In November 2025 the company bought Penske Motor Group (including Longo Toyota, the largest Toyota dealer in the U.S.) from a Penske family-related owner. Because both were under common control, the 2023-2025 results were restated as if the businesses had always been combined, so only those three years are on today's basis. Earnings level. We measure owner earnings as operating cash flow, stripped of working-capital timing swings, less stock compensation and the capital spending needed to keep the stores as they are. On the combined basis this was $12.88 a share in 2023, $9.37 in 2024 and $10.26 in 2025. Because we value the business before its lenders and then subtract what it owes, we add back non-vehicle interest (about $88-93 million a year, roughly $1.30-1.40 a share), giving $14.24, $10.68 and $11.64. We anchor on the middle year, $11.64. Inventory financing (floor plan) interest stays in the earnings as an operating cost, because the vehicles it funds are the business's working stock. Earlier years are not used: 2021-2022 were swollen by the industry-wide vehicle-shortage margin windfall that has since unwound, and pre-2023 figures describe a smaller company. In the first half of 2026 the company spent about $670 million on acquisitions, including Lexus of Orlando and Lexus of Winter Park; since that purchase was largely debt-funded and the debt is subtracted below, we credit those stores with about $0.92 a share of cash earnings, a return in line with what dealership purchases typically earn, for a run-rate of about $12.56. Growth check. Owner earnings rose about 9% in 2025, but that came from working-capital timing on flat revenue, not a better business. First-half 2026 operating cash flow ($419 million against $500 million a year earlier) and flat profit ($495 million versus $524 million) point to softer conditions, so year one of the base case starts about 5% below the run-rate rather than extending last year's rise. Base case ($190 a share). Year one about $11.93, then 2% a year growth. The growth credited is limited to what the company has done every year for decades: small tuck-in dealership purchases and new franchise points funded from its own cash, plus routine price increases in service and parts. We did not credit any recovery in the commercial truck market, wider vehicle margins or larger deals. After year ten the earnings are held flat with no further growth, on the basis that franchise agreements carry no expiry date and the stores are kept up by the maintenance spending already deducted. The business is worth about $228 a share; it owes about $38 a share (total borrowings of $2.50 billion at June 30, 2026 including the $500 million 3.75% notes due 2029, mortgage loans and credit lines, plus a small minority interest, less cash), leaving about $190. Bear case ($141 a share). Auto retail is cyclical. In the 2008-2009 credit crisis, U.S. new-vehicle sales fell about 40% and dealer profits fell harder, and heavy-truck sales have repeatedly fallen by a third or more in freight recessions. The bear case puts a downturn of that kind into years two and three: earnings drop to about 60% of the run-rate (about $7.54 a share) for two years, recover to 85% by year five, then grow only 1% a year with no growth after year ten. Even at the trough the business generates roughly $500 million a year, far more than its roughly $90 million of non-vehicle interest, so it can carry its debt. The near maturities are $355 million in 2026 and $92 million in 2027, with the notes due in 2029. The business is worth about $179 a share, it owes about $38, leaving about $141. Bull case ($262 a share). The acquired stores perform at the run-rate from year one, the long record of tuck-in acquisitions and service growth continues at 3.5% a year, and after year ten earnings grow about 1% a year, in line with the company's long history of adding stores and service capacity out of its own cash. Business worth about $300 a share, less $38 of debt, about $262. Margin-of-safety price. We are reasonably confident about the earnings level: three restated years range only from about $10.70 to $14.20 a share before interest, and over half of gross profit comes from service and parts, which held up in past downturns. The worst plausible outcome is a deep recession hitting car sales, truck sales and Penske Transportation Solutions together, as in 2009, possibly while manufacturers push agency selling in Europe, which reduces the dealer's share of new-vehicle profit. The business would survive that: debt is moderate, it is spread across 40-plus brands and several countries, and much of the debt is backed by owned real estate. The things we are most likely to be wrong about are how far vehicle margins still have to fall and how deep the next truck downturn is; if both go the wrong way the shares look worth roughly the bear figure, around $140. The company pays a steady dividend and buys back shares during the holding period. The margin-of-safety price is about $135: at that price even the downturn case is covered, and if the business simply holds its current earnings, the base case implies a move toward the base value within two to three years that, with dividends, works out to about 20% a year. Previous analyses were made on a different basis and their figures are not directly comparable. Stock compensation was not shown separately in cash-flow statements before 2023; because reported cash flow ties out without it, we treated it as already included in those years rather than deducting it twice.