US Franchise Auto Dealers: Updated Thoughts and 2Q26 EPS Preview: Sector Ever So Close to Revision Reset; With SAAR and GPUs Stable, P&S Outlook Commentary Key to Building Confidence in 2027 EPS Inflection

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US Franchise Auto Dealers: Updated Thoughts and 2Q26 EPS Preview: Sector Ever So Close to Revision Reset; With SAAR and GPUs Stable, P&S Outlook Commentary Key to Building Confidence in 2027 EPS Inflection

pital allocation as the deal environment becomes

more favorable, and we believe in the near-term, investors are likely to gravitate to

names that have more visible bang-for-buck on capital return, i.e. buybacks (ABG and

LAD have shown greater inclination here in the near-term). Overall, with the sector

back to its widest discount to KMX in recent history (~50% vs. LT average of ~30%,

see Figure 71AverageFranchiseDealerFY2P/EDiscountvs.KMX), and revisions closer to bottoming out, management commentary on

P&S growth will be key to preventing multiples from capping out at current levels.

P&S data points from recent checks, surveys and corporate access: Recent

management commentary (see takeaways from our SoCal dealership tours and Top

10 themes from the June Conference Call Series, including meetings with senior

management from ABG, GPI, LAD, PAG, SAH, NAAA, and The Presidio Group)

has pointed to consumer affordability pressures impacting service traffic and driving

rate pressure, including the need for incremental discounting on cross-sell and up-sell

initiatives — ~60% of dealer respondents cited a similar dynamic in our recent annual

dealer survey. Our own tracking of Chase data shows a modest deceleration on a 2-yr

comp basis in May before accelerating m/m into June, but no evidence of a broad-

based spending pullback, while CPI datapoints also indicate favorable y/y inflation

trends (Figure 8MotorVehicleMaintenanceandRepairCPI and Figure 9ChaseCardSpendingonMotorVehicleMaintenanceandRepair). We expect the health of the service consumer to be a