Penske Automotive Group, Inc. (PAG-NYSE)

February 13, 2015 Penske Automotive Group, Inc. (PAG-NYSE) Current Recommendation Prior Recommendation Neutral Date of Last Change 07/16/2014 Current Price (02/12/15) $47.96 Target Price $58.00 SUMMARY DATA OUTPERFORM 52-Week High $52.19 52-Week Low $37.51 One-Year Return (%) 16.08 Beta 1.84 Average Daily Volume (sh) 362,617 Shares Outstanding (mil) 90 Market Capitalization ($mil) $4,316 Short Interest Ratio (days) 6.14 Institutional Ownership (%) 42 Insider Ownership (%) 36 Annual Cash Dividend $0.88 Dividend Yield (%) 1.83 5-Yr. Historical Growth Rates Sales (%) 11.9 Earnings Per Share (%) 30.8 Dividend (%) 55.7 using TTM EPS 14.7 using 2015 Estimate 12.8 using 2016 Estimate 11.8 Zacks Rank *: Short Term 1 3 months outlook 3 - Hold * Definition / Disclosure on last page SUMMARY Penske Automotive s fourth-quarter 2014 earnings improved 14.5% to $0.79, marginally missing the Zacks Consensus Estimate of $0.80. Revenues grew 16.3% year over year to $4.41 billion, beating the Zacks Consensus Estimate of $4.37 billion. The year-over-year rise was driven by a 10.5% increase in total retail sales to 98,251 units, including a 6.8% rise in same-store retail sales to 94,357 units. Penske Automotive is poised to benefit from increasing dealerships, rising sales of new vehicles, a strong financial position and dividend hike. It is also introducing initiatives to drive new market penetration and improvements in used-vehicle remarketing. Thus, we are maintaining our Outperform recommendation. Risk Level * Below Avg., Type of Stock Large-Blend Industry Ret/Whl-Auto&Tr Zacks Industry Rank * 27 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 3,349 A 3,631 A 3,759 A 3,705 A 14,444 A 2014 4,048 A 4,407 A 4,418 A 4,410 A 17,177 A 2015 4,605 E 4,917 E 4,908 E 4,802 E 19,232 E 2016 20,480 E *Note: Revenues in 2014 do not add up to annual figure due to rounding-off. Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 $0.63 A $0.70 A $0.73 A $0.69 A $2.75 A 2014 $0.73 A $0.89 A $0.85 A $0.79 A $3.27 A 2015 $0.86 E $0.99 E $0.95 E $0.95 E $3.75 E 2016 $4.06 E *Note: EPS in 2014 do not add up to annual figure due to rounding-off. Projected EPS Growth - Next 5 Years % 10 2015 Zacks Investment Research, All Rights reserved. www.zacks.com 10 S. Riverside Plaza, Chicago IL 60606

RECENT NEWS Penske Automotive s Earnings Miss Estimates in Q4 Feb 11, 20145 Penske Automotive s fourth-quarter adjusted earnings per share improved 14.5% to $0.79 from $0.69 reported in the year-ago quarter, marginally missing the Zacks Consensus Estimate of $0.80. Adjusted net income from continuing operations rose 13.8% to $71 million in the quarter from $62.4 million a year ago. Revenues grew 16.3% year over year to $4.41 billion, beating the Zacks Consensus Estimate of $4.37 billion. The improvement was driven by a 10.5% increase in total retail sales to 98,251 units, including a 6.8% rise in same-store retail sales to 94,357 units. Retail unit sales went up 8% in the U.S. and 16.8% internationally. Same-store retail revenues rose 8.3% to $3.79 billion. New Vehicle revenues escalated 12.6% to $2.20 billion on an 11.7% rise in sales to 54,168 units. Used Vehicle revenues rose 10.8% to $1.19 billion owing to a 9.2% increase in sales to 44,083 units. Meanwhile, revenues from Service and Parts improved 9.2% to $430.4 million. Revenues from Fleet and Wholesale Vehicle improved 26.4% to $217.9 million, while revenues from Finance and Insurance rose 13.6% to $105.1 million. Gross profit improved 15.4% to $658.7 million from $571 million in the fourth quarter of 2013. Operating income augmented 11.6% to $119.4 million from $107 million a year ago. 2014 Results Penske Automotive recorded adjusted earnings of $3.27 per share for full-year 2014, marginally beating the Zacks Consensus Estimate of $3.26. In comparison, the company had generated earnings of $2.75 per share in 2013. Adjusted net income from continuing operations rose 18.9% to $295.7 million in 2014 from $248.8 million a year ago. Revenues increased 18.9% to $17.18 billion from $14.44 billion in 2013, missing the Zacks Consensus Estimate of $17.23 billion. Dividend Update On Jan 28, 2015, Penske Automotive announced a quarterly cash dividend of $0.22 per share. The dividend will be paid on Mar 2 to shareholders of record as on Feb 10, 2015. Financial Position Penske Automotive had cash and cash equivalents of $36.3 million as of Dec 31, 2014, down from $50.3 million as of Dec 31, 2013. Long-term debt stood at $1.35 billion as of Dec 31, 2014, up from $996.3 million as of Dec 31, 2013. Equity Research PAG Page 2

VALUATION Currently, shares of Penske Automotive are trading at 12.8x our 2015 earnings per share (EPS) estimate of $3.75. The company s current trailing 12-month earnings multiple is 14.7x, compared with the 20.4x average for the peer group and 19.0x for the S&P 500. Over the last five years, shares of Penske Automotive have traded in a range of 9.8x to 17.1x trailing 12-month earnings. The stock is also trading at a discount to the peer group, based on forward earnings estimates. The current is at a 37% discount to the peer group for 2015. Our long-term Outperform recommendation on the stock indicates that it will perform better than the overall market. Our target price of $58.00, which is 15.5x our 2015 EPS estimate, reflects this view. Key Indicators F1 F2 Est. 5-Yr EPS Gr% P/CF 5-Yr High 5-Yr Low Penske Automotive Group, Inc. (PAG) 12.8 11.8 10.0 12.0 14.7 17.1 9.8 Industry Average 20.3 24.8 14.6 13.3 20.4 31.7 8.4 S&P 500 16.5 15.4 10.7 15.1 19.0 19.4 12.0 AutoNation Inc. (AN) 16.3 14.5 14.5 13.9 18.3 22.6 14.1 NowAuto Group, Inc. (NAUG) N/A N/A N/A N/A N/A N/A N/A Group 1 Automotive Inc. (GPI) 12.9 11.6 14.1 10.9 14.3 17.1 10.1 Sonic Automotive Inc. (SAH) 11.9 11.0 8.9 8.1 13.1 15.3 8.5 TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA Penske Automotive Group, Inc. (PAG) 2.6 2.8 1.1 17.8 0.8 1.7 10.5 Industry Average 2.2 2.2 2.2 12.5 0.6 0.3 7.5 S&P 500 5.3 9.8 3.2 25.5 N/A 2.1 N/A Equity Research PAG Page 3

Earnings Surprise and Estimate Revision History NOTE THIS IS A NEWS-ONLY UPDATE; THE REST OF THIS REPORT HAS NOT BEEN UPDATED YET. Equity Research PAG Page 4

OVERVIEW Penske Automotive Group, Inc., based in Bloomfield Hills, MI, was established in 1990 and is the second largest automotive retailer in the U.S. As of Sep 30, 2014, the company operated 177 franchises in the U.S. and 147 franchises outside the U.S., primarily in the U.K. Also, the company offers 35 different brands. Apart from selling new and used vehicles, Penske Automotive offers higher-margin products, such as finance, insurance and vehicle service contracts; maintenance repair services; replacement parts and aftermarket automotive products. In the first nine months of 2014, New Vehicle represented 50.5% of the total revenue, Used Vehicle represented 29.3%, Service and Parts represented 10%, Fleet and Wholesale Vehicle represented 4.8%, Finance & Insurance represented 2.6%, and Commercial Vehicle and Car Rental represented 2.8%. In the first nine months of 2014, Penske Automotive generated 61% of the total automotive dealership revenue in the U.S. and Puerto Rico, and 39% outside the U.S. Also, 71% of automotive dealership revenues have been generated from premium brands such as Audi, BMW, Mercedes-Benz and Porsche. The company does not have any cost advantage from New Vehicle sales as it purchases directly from manufacturers and thus, competes primarily with other franchised dealers in marketing areas. For Used Vehicle sales, Penske Automotive competes with other franchised dealers, independent used-vehicle dealers, automobile rental agencies, online purchasing services, and private parties. REASONS TO BUY Penske Automotive aims to boost earnings by expanding its dealership network. In Nov 2014, Penske Automotive completed the acquisition of The Around The Clock Freightliner Group ( ATC ), a heavy-duty retail truck dealership group located in Texas, Oklahoma and New Mexico. The former had 27% stake in ATC earlier, which increased to 86% on completion of the deal. The company is expected to provide annualized incremental revenues of about $600 $700 million and incremental earnings per share of $0.12 $0.14 to Penske Automotive. Penske Automotive is also constructing a new Porsche dealership in Broward County, FL. The new dealership the seventh Porsche dealership in the U.S. and 15th on a worldwide basis will open in 2015 and is expected to generate $125 million in annualized revenues. In Oct 2014, the company completed the acquisition of MTU Detroit Diesel Australia from Daimler AG and MTU Friedrichshafen (an affiliate of Rolls-Royce Power Systems). The acquisition is expected to boost the company s annual revenues by $225 $250 million. In the second quarter of 2014, Penske Automotive opened a new Toyota dealership in Surprise, AZ. The company also forayed into Spain with the establishment of a 50-50 joint venture that will exclusively operate BMW and MINI dealerships in Barcelona. In Mar 2014, the company completed the acquisition of BMW of Greenwich, a BMW dealership in Greenwich, CT, which is expected to boost annual revenues by $190 million. Penske Automotive has been benefiting from increasing new vehicle sales over the past few years. During 2013, unit sales rose 10.4% to 199,795 units. New vehicle unit sales in the first nine months of 2014 escalated 10.4% to 163,071 units. The company expects the U.S. and U.K. automotive markets to perform well in the future. This will enhance business opportunities for the company. The U.S. auto market will profit from rising demand owing to an increase in the aging vehicle population, a strong credit environment for consumers and the launch of new models by different automakers. The U.K market will also record solid performance based on improving new vehicle registrations due to the progressive economic scenario, new product introductions and attractive financing offers. Equity Research PAG Page 5

Penske Automotive has a strong financial position and favorable automotive retail environment in the U.S. and U.K. markets. Moreover, the company is focusing on business expansion. These factors also facilitate capital deployment. Banking on this strength, on Oct 15, 2014, Penske Automotive announced a 5% increase in its quarterly cash dividend to $0.21 per share from $0.20. Further, the company repurchased 175,000 shares for $8 million, at an average price of $45.95 a share in the first nine months of 2014. The remaining authorization available under the current repurchase program stands at $77.6 million as of Sep 30, 2014. During the nine months, the company also acquired 160,350 shares for $7.5 million at an average price of $46.48 from employees. The share repurchases and increased dividends reflect the company s commitment toward enhancing shareholders returns. Penske Automotive is consistently striving to enhance its presence in the Australian market. The company has a commercial vehicle distribution center and car rental franchises in Australia. In Aug 2014, Penske Automotive launched its truck rental service in Australia in collaboration with its Brisbane-based wholly owned subsidiary Penske Commercial Vehicles, under the brand name Penske Truck Rental. Notably, the truck center is operated by Penske Commercial Vehicles and has exclusive distribution rights for MAN and Western Star Trucks in Australia and New Zealand. The rental service offers a 20-truck fleet comprising high-specification MAN and Western Star prime movers. Additionally, the company plans to extend the rental service to other areas in order to cater to a larger customer base. The company is continuously introducing initiatives which will drive market penetration and improve used-vehicle remarketing. RISKS Penske Automotive competes with other franchised automotive dealerships, private market buyers and sellers of used vehicles, Internet-based vehicle brokers, national and local service and repair shops and parts retailers, and automotive manufacturers. Rising competition and increasing price transparency will lead to lower selling prices, thus affecting the profits of the company. The company s international business is exposed to fluctuation in foreign exchange rates. The economic and political conditions of markets outside the U.S. also affect the company s results. Moreover, the company faces challenges from changing interest rates on outstanding debt. This can increase the interest expense of the company, thereby affecting its profit margin. Penske Automotive has an extensive merchandise inventory. As of Sep 30, 2014, the company s inventory comprised 72.5% of the current assets. The high proportion of inventory in the current assets can affect the short-term liquidity of the company in periods of low sales. DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of PAG. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The Equity Research PAG Page 6

current distribution of Zacks Ratings is as follows on the 1139 companies covered: Outperform - 16.1%, Neutral - 77.6%, Underperform 6.0%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Analyst Copy Editor Content Ed. Lead Analyst QCA Reason for Update Kamalika Sinha Oindrila Ghoshal Dutta Sweta Goenka Sweta Goenka Anindya Barman Earnings Equity Research PAG Page 7