DealerTrack shares soar on earnings

November 8, 2011

NEW YORK (AP) — Shares of DealerTrack Holdings soared Tuesday after the automotive retail software company more than quadrupled in the third quarter on better car sales and favorable credit trends.

THE SPARK: The Lake Success, N.Y company, which makes technology for auto dealers, posted an adjusted profit of $14.7 million, or 34 cents per share. Revenue rose 50 percent to $95.8 million.

The results blew away Wall Street's adjusted expectations for a profit of 22 cents per share on revenue of $88.3 million, according to FactSet.

The company also boosted its full-year profit outlook, again surprising Wall Street.

THE BIG PICTURE: Credit has been hard to come by as banks pulled back on lending during the financial crisis. DealerTrack said that not only has credit become easier to get, it has added new lenders to its network. That is driving sales higher.

In addition to developing software that helps dealers manage a variety of store operations, from inventory management to price tracking, DealerTrack also provides software that helps car buyers find insurance and financing.

THE ANALYSIS: David Scharf of JMP Securities backed his "Market Perform" rating for DealerTrack, saying that car sales may continue to be a bright spot in the consumer finance industry next year, with an increasing number of lenders competing for automotive loans.

"There is mounting evidence that DealerTrack is once again playing in an attractive sandbox," Scharf wrote.

The analyst also cited new lenders, as DealerTrack surpassing its full-year goal of 100 lenders by landing 130 in the first nine months of the year.

Peter Goldmacher of Cowen and Co. also backed his "Outperform" rating for DealerTrack, noting that the company is investing in its processing services business, which he expects to continue to drive increasingly profitable growth through 2013.

SHARE ACTION: In heavy afternoon trading, DealerTrack shares jumped $3.09, or 14 percent, to $25.81, after setting a 52-week high of $26.97 earlier in the day.

Shares of DealerTrack Holdings Inc. have gained about 13 percent since the beginning of the year.