AutoNation posted a 20% rise in earnings per share to $0.90 in the
third quarter of 2014, beating the Zacks Consensus Estimate of
$0.86. Revenues increased 9.8% to $4.9 billion, surpassing the
Zacks Consensus Estimate of $4.8 billion. The uptrend can be
attributed to strong performances in the new vehicles, parts and
service, used vehicles, and finance and insurance business sectors.
In 2015, industry new vehicle sales are expected to be above 17
million units. With the improvement in market dynamics, the
company's optimal brand and market mix should boost new vehicle
sales. Meanwhile, AutoNation's efforts to expand its dealer network
should help it outperform peers. However, rising interest rates
pose a threat. Thus, we are reiterating our Neutral recommendation
on the stock.
AutoNation, Inc. (AN) is the largest automotive retailer in the
U.S. and is about twice the size of its nearest competitor. As of
Nov 4, 2014, the company owned and operated about 277 new vehicle
franchises and 229 stores that sell in major metropolitan markets
of 15 U.S. states of the Sunbelt region. The company offers 34
different brands of vehicles, the core ones being Ford, General
Motors, Chrysler, Toyota, Nissan, Honda, Volkswagen, Mercedes-Benz
and BMW. These brands represented 95% of the new vehicle sales in
the first nine months of 2014.
AutoNation also offers vehicle maintenance and repair services,
vehicle parts, extended service contracts, vehicle protection
products and other aftermarket products. It also arranges financing
for vehicle purchases through third-party sources.
Management divided AutoNation's business into three operating
segments Domestic (accounted for about 33.7% of the company's
revenues in the first nine months of 2014), Import (36%) and
Premium Luxury (29.6%). The Domestic segment includes stores
selling vehicles manufactured by General Motors, Ford and Chrysler
whereas the Import segment comprises stores selling vehicles
manufactured by Toyota, Honda, Hyundai and Nissan. The Premium
Luxury segment includes stores that sell vehicles manufactured by
Daimler (Mercedes Benz division), BMW, Toyota (Lexus division) and
New vehicle sales generated 56.8% of revenues, used vehicle
sales accounted for 23.3%, parts and service added 14.9%, finance
& insurance and other activities constituted 3.9%, and Other
contributed 1.1% in the first nine months of 2014.
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