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Investors are punishing AutoCanada Inc. because of its contact with Alberta, but the stock price decline is overdone and it might be time to buy shares from the dealership group, based on AltaCorp Capital.
Analyst Chris Murray cut his price target on AutoCanada to $26 from $33 but upgraded the stock to outperform, citing an approaching inflection point.
“The market continues to be extremely punitive toward the storyline, essentially treating it as being a crude oil derivative and refusing to attribute any value towards the company’s growth prospects and diversification out of Alberta,” Murray wrote inside a note to clients.
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As an effect, Murray believes there’s nearly Half upside towards the stock, even after cutting his estimates for sales, margins and acquisition growth.
AutoCanada gets nearly half of their revenue from its dealerships in Alberta, in which the economy has been battered by falling oil prices, but it is expanding in Eastern Canada, where auto sales are required to hit another record high this year.
“We believe we may be approaching the juncture where we have reasonable visibility to the downside, which also frames the more bullish upside case,” Murray wrote.
Murray expects AutoCanada to complete one acquisition per quarter this year, with none in 2017 – a dramatic slowdown in the multi-year acquisition spree the organization has been on.
