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Penske Working Capital Clarity?

Penske Racing

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Penske Automotive Group (NYSE:PAG) reported Q3 earnings results. At first glance investors may be encouraged. Penske is very aware of the $150.6 million principal amount of convertible notes expected to be redeemed in April 2011.

Chairman Roger Penske said “We will continue to pursue opportunities to generate incremental revenue, while maintaining the financial discipline that has allowed us to pay down more than $210 million of long-term debt since the beginning of 2009.”

They keep mentioning they have enough unused lines of credit and working capital to reduce long-term debt and grow the business. What they fail to discuss is what the growth will need for working capital. As they become more reliant on short-term debt they become more interest rate sensitive. By buying out equity you have short-term engineering boosting EPS and long-term interest rate risk.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.