JPMorgan Downgrades Sonic, Asbury, Group 1 Amid Weakening Fundamentals; Upgrades Cars.com

JPMorgan has downgraded Sonic, Asbury, and Group 1 in the U.S. auto retail sector, citing weakening fundamentals and a negative risk-reward profile. Analyst Rajat Gupta warns of potential challenges ahead for the sector despite recent share price gains. However, Cars.com has been upgraded.

In a sweeping preview of the U.S. auto retail sector ahead of the Q2 earnings season, JPMorgan analyst Rajat Gupta has issued a series of downgrades and upgrades, highlighting the sector's weakening fundamentals and a negative risk-reward profile [1]. Gupta warned of potential deceleration in EPS growth as supply exceeds demand, leading to three downgrades and one upgrade.

Sonic Automotive (NYSE:SAH), Asbury Automotive Group (NYSE:ABG), and Group 1 Automotive (NYSE:GPI) have been downgraded to Underweight and Neutral ratings, respectively. Sonic Automotive, which had seen strong outperformance, is expected to face headwinds from tariff-exposed brands, potential affordability headwinds, and tougher comps in P&S in the second half of 2026. Asbury Automotive Group, despite favorable brand mix, faces challenges from weak Stellantis performance and regional mix pressures. Group 1 Automotive, previously Overweight, is expected to see outsized revision benefits fade as Inchcape cost out actions are in the rear-view, and the UK faces a tough backdrop [1].

Conversely, Cars.com (CAR) has been upgraded to Overweight from Neutral. The upgrade is driven by signs of improvement in product development and adoption, along with increased optionality following the recent expansion into digital D2D wholesale through the acquisition of DealerClub [1].

Lithia Motors (NYSE:LAD), the only Overweight-rated name in JPMorgan's coverage, is expected to disconnect favorably on EPS/EBITDA growth from adjacent drivers like DFC and has greater balance sheet optionality with a greater emphasis on buybacks [1]. Penske Automotive Group (NYSE:PAG) remains Underweight, with tough fundamentals driven by unfavorable exposure to tariff-exposed brands, a tough UK backdrop, and continued weakness in freight markets [1].

These downgrades and upgrades reflect the sector's challenges amidst recent share price gains. As the earnings season unfolds, investors will closely monitor the performance of these companies and the broader sector.

References:
[1] https://seekingalpha.com/news/4468303-us-auto-retail-sonic-asbury-and-group-1-see-downgrades-at-jpmorgan-carscom-is-upgraded