AutoNation: "Where's The Growth" at Forbes 6/25/12
AutoNation shares skidded this morning after an analyst raised concerns about American car demand and the stock’s valuation.
While auto demand stayed strong in the U.S. in recent month, it’s likely to soften in 2013, Deutsche Bank analyst Rod Lache says in a note to clients. Lache cut his rating on the stock, from Neutral to Sell, and lowered his price target, from $35.87 to $24.
To start the year, dealers saw 14.47 million cars sold per month, from 13.4 million at the end of 2011. Much of that likely came from pent-up demand from Japanese inventory shortages and a warm winter. Going forward, though, “a number of headwinds” should tamp down demand, Lache says, citing the impending U.S. fiscal cliff and lingering concerns about Europe. “We are increasingly concerned that U.S. economic growth prospects for 2013 may be insufficient to spur significant job creation, and further upside to automotive demand,” he says.
Shares of AutoNation fell 4% to $34.44.
As the premier auto retailer, AutoNation does deserve a premium, Lache says. But not as much as it has enjoyed. At its closing price on Friday, $35.87, the stock fetched 14 times expected 2013 earnings. Competitors trade for significantly less: Group 1 at 9 times; Penske at 9 times and Sonic at 8 times. With Lache’s new target, and tacing into account this morning’s slide in share price, the stock would sell at 9 times earnings.