On Jan 10, we maintained our Neutral recommendation on
) based on its improved performance in the third quarter of
fiscal 2013. As the market revives, the company's optimal brand
and market mix should boost new vehicle sales. AutoNation's
effort to expand its dealer network should help it outperform
peers. However, we are concerned about rising interest rates.
Why the Reiteration?
On Oct 24, 2013, AutoNation posted a 13.6% rise in earnings per
share to 75 cents in the third quarter of fiscal 2013 from 66
cents in the same quarter of fiscal 2012. However, earnings per
share missed the Zacks Consensus Estimate by 3 cents. This was
the fourth straight quarter in which the company reported record
Revenues increased 13.7% to $4.47 billion, in line with the Zacks
Consensus Estimate. The revenue growth was attributable to strong
performance in all business sectors. The company's Domestic
segment was the biggest gainer in the quarter.
Following the release of third-quarter results, the Zacks
Consensus Estimate for 2013 fell 1% to $2.94 per share. The Zacks
Consensus Estimate for 2014 remained constant at $3.36 per share.
Hence, AutoNation now carries a Zacks Rank #3 (Hold). Notably,
some of its competitors in the auto retail industry include
Group 1 Automotive Inc.
Lithia Motors Inc.
AutoNation will benefit from recovery in the auto market, backed
by its optimal brand and market mix as well as a disciplined cost
structure. In the first nine months of 2013, new vehicle unit
sales increased 13.7%.
Rising average age of cars and trucks in the U.S., robust
consumer credit environment and an increase in new product
offerings from automotive manufacturers should lead to a strong
selling environment. AutoNation expects that its new vehicle
sales for 2013 will be in the mid-15 million units.
Moreover, AutoNation is poised to gain from its aggressive store
expansion strategy. During the third quarter, AutoNation
announced its decision to acquire O'Hare Honda and O'Hare Hyundai
in Chicago. It is expected that these stores will generate annual
revenues of $85 million with retail sales volume of 3,100 new and
AutoNation has acquired 12 franchises and was awarded 4 new
franchises by some manufacturers during the last 5 quarters. The
company expects roughly $1.1 billion in revenues from these
stores once they are fully operational.
ASBURY AUTO GRP (ABG): Free Stock Analysis
AUTONATION INC (AN): Free Stock Analysis
GROUP 1 AUTO (GPI): Free Stock Analysis
LITHIA MOTORS (LAD): Free Stock Analysis
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However, we are concerned about rising interest rates, as a
significant amount of the company's debt carries variable rates,
which will increase interest expenses as short-term interest
Other Stocks That Warrant a Look
A better-placed stock in the industry in which AutoNation
Automotive Group, Inc.
), with a Zacks Rank #2 (Buy).