New Credit Agreement for AutoNation - Analyst Blog

AutoNation Inc. ( AN ) recently signed a new unsecured credit agreement, comprising a $500 million term loan facility and a $1.2 billion revolving credit facility, valid till December 07, 2016. This new agreement replaces AutoNation's existing credit agreement due 2012 and 2014. Last month, the company announced that it is in talks with lenders regarding the new credit agreement.

The new agreement also allows the company to raise the amount of the term loan as well as the revolving credit facility by up to $500 million in aggregate depending on credit availability. Moreover, it is expected to reduce the company's borrowing costs through lowered reduced interest rate spreads as compared with the previous credit agreement due 2014.

AutoNation is the largest automotive retailer in the U.S. and is about twice the size of its nearest competitor. As of September 30, 2011, the company owned and operated 257 new vehicle franchises located in major metropolitan markets across 15 states, with about 75% of sales being focused toward the Sunbelt region of the U.S. (with 50% in Florida and California).

In the last reported quarter, AutoNation posted a profit of 48 cents per share compared with 39 cents per share in the third quarter of 2010. Total revenue increased 7% to $3.5 billion, driven mainly by higher new and used vehicle average selling prices.

Gross profit rose 5% to $575 million from $545 million in the year-ago period. The year-over-year upside in gross profit was attributable to an increase in retail new vehicle gross profit, as well as a rise in finance and insurance gross profit. Operating profit was $144.1 million, up 19% from $120.9 million a year ago.

AutoNation's efforts to expand its dealer network by investing in existing stores and service centers will help it outgrow its peers. The company believes new vehicle sales will continue to improve based on the long-term recovery of the U.S market.

However, tough competition from the likes of Penske Automotive Group, Inc. ( PAG ) and Sonic Automotive Inc. ( SAH ) along with rising interest rates are some of the headwinds faced by the company. As a result, the shares of the company currently retain a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating and we reiterate our long-term recommendation of Neutral over the long term (more than 6 months).

AUTONATION INC ( AN ): Free Stock Analysis Report

PENSKE AUTO GRP ( PAG ): Free Stock Analysis Report

SONIC AUTOMOTVE ( SAH ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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