Ccord ACQueue
Investment recommendation We are reiterating our BUY rating and reducing our target price to $81.00 (from $88.00). Investment highlights AutoCanada reported in-line Q3/14 earnings results on Thursday evening. Revenue increased 82% YoY to $733 million due to the consolidation of G.M. dealerships. Adjusted EBITDA of $28 million was in line with our estimate and up from $18 million in Q3/13. EPS of $0.71 was slightly below consensus of $0.72 and above last year at $0.51. In our view, AutoCanada continues to have a large pipeline of potential acquisitions and note that each dealership adds ~$0.05 to our EPS estimate. Furthermore, new vehicle sales remain robust, with October data pointing to a year-to-date increase in new vehicle sales of 5.6%, ahead of last year’s record high. Notably, Chrysler, the OEM which AutoCanada has the greatest exposure, has delivered a 9.7% increase in new vehicle sales YoY, leaving AutoCanada well positioned to capitalize on a robust market for new vehicles. Valuation Our target represents 23.5x our 2015 EPS estimate of $3.45. In our view, AutoCanada’s healthy growth profile through both acquisitions and leverage to the strong new vehicle sales market, justifies the company’s premium valuation