On Jun 12, we maintained our Neutral recommendation on
) based on its optimal brand and market mix, which is driving the
sales of new vehicles. Further, the company focuses on expanding
its dealership network by investing in existing stores and
These also let AutoNation post improved result in the first
quarter of 2013. However, we are concerned about the rising
interest rates and depleted cash balance of the company.
Why the Reiteration?
On Apr 18, AutoNation posted a 21.4% rise in earnings per share
to 68 cents in the first quarter of 2013 from 56 cents in the
same quarter of 2012, topping the Zacks Consensus Estimate by 5
Revenues increased 10.8% to $4.1 billion, almost in line with the
Zacks Consensus Estimate of $4.0 billion. The revenue growth was
mainly attributable to strong new vehicle sales during the
Following the release of the first quarter results, the Zacks
Consensus Estimate for 2013 increased 2.4% to $2.97 per share.
Meanwhile, the Zacks Consensus Estimate for 2014 increased 2.5%
to $3.33 per share.
AutoNation is set to witness higher margins due to its product
mix, focus on selling parts and services, such as insurance,
finance and aftermarket product services. In addition, the
company follows an aggressive share repurchase policy. In the
first quarter of 2013, AutoNation repurchased 0.1 million shares
for $2.2 million.
However, we are concerned about the rising interest rates as a
significant amount of AutoNation's debt is taken at a variable
rate. Moreover, the performance of the company will be adversely
affected by a shift in mix away from premium luxury and domestic
vehicles to import vehicles with lower average selling prices.
Other Stocks to Consider
Currently, AutoNation retains a Zacks Rank #2 (Buy). Other stocks
that are performing well in the same industry where AutoNation
Lithia Motors Inc.
Asbury Automotive Group, Inc.
Group 1 Automotive Inc.
). Asbury Automotive is a Zacks Rank #1 (Strong Buy) stock while
Group 1 and Lithia carries Zacks Rank #2 (Buy).
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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