Scouring for Dents in AutoNation

 | Oct 16, 2012 | 3:00 PM EDT
  • Comment
  • Print Print
  • Print
Stock quotes in this article:


Shares of AutoNation (AN) have been driving higher all year, powered by increasing vehicle sales and aggressive share buybacks. But with the stock within 2 points of an all-time high, is now the time to get in, or is the company about to skid off the road?

AutoNation has been the perfect leveraged bet for playing the trend of improving auto sales. As these sales improved, the company revved up the stock-buyback machine. Hedge fund investors noticed the double whammy and went along for the ride -- 38% for 2012. Investors in CarMax (KMX) haven't been as lucky; that stock is up just 3 points for the year. Meanwhile, investors in General Motors (GM) and Ford (F) are in need of a tow truck.

At the beginning of the year, analysts were estimating auto sales would reach 13 million units, and investors jumped into the automakers. But AutoNation provided the best ride. As of September, the consensus estimate is 14.96 million units.

For the June quarter, AutoNation reported earnings of $0.66 per share, $0.07 better than the consensus estimate. Revenue rose 17% to $3.9 billion. Operating income rose 13.7% to $164.2 million. New-car sales were up 25.7% to $2.2 billion. Used-car sales were up 6.7%. Insurance and financing revenue rose 24%. Even parts-and-service revenue rose 5%. During the quarter, the company sold 113,000 cars and made a profit of $2,172 per new car and $1,624 per used car.

During the second quarter, the company spent $126 million to repurchase 3.7 million shares. The board of directors authorized management to repurchase an additional $250 million worth of stock. With the increased authorization, AutoNation has $368 million of repurchase firepower.

It's hard to find dings in this story, but if you look close enough you can find some. Year-to-date, new-car sales are up 19.5% and used-car sales are up 8.7%, but gross profit per new vehicle is down 10.7%. Cash flow from operations is also declining. That last metric has declined from $125.1 million to $119.5 million in the last six months. I think competition is taking a toll. Although sales volume is up, pricing and cash flow is down.  I think management knows this, and that's why they increased the share buyback. In my view, investors in AutoNation are about to hit a rough patch.

Columnist Conversations

Foot Locker's (FL) less than expected quarterly earnings set off a round of selling the entire athletic appare...
View Chart »  View in New Window » Gold has met the first upside target off the last setup zon...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.