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AutoNation (AN) Up 1.8% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for AutoNation (AN). Shares have added about 1.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is AutoNation due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

AutoNation’s Q2 Earnings and Revenue Beat Estimates

AutoNation Inc. (AN) reported adjusted earnings of $1.20 per share, beating the Zacks Consensus Estimate of $1.08 per share. In the year-ago quarter, the bottom line was $1.14 per share.

Net income from continuing operations was $101 million compared with $97 million in second-quarter 2018.

During the quarter under review, AutoNation’s revenues were $5.34 billion compared with $5.39 billion in the prior-year quarter. The top line also surpassed the Zacks Consensus Estimate of $5.32 billion.

During the reported quarter, new-vehicle revenues decreased 6.1% year over year to $2.8 billion. Used-vehicle revenues rose 6.2% to $1.4 billion from the year-ago figure. The parts and service business’s revenues gained 5.1% to $901.5 million from second-quarter 2018. Net revenues from the finance and insurance business were $255 million, reflecting rise of 3% from the prior-year quarter.

Segmental Details

Revenues at the Domestic segment — comprising stores that sell vehicles manufactured by General Motors, Ford and FCA US — declined 6.5% to $1.7 billion. The segment’s income decreased 1.8% to $66 million in the quarter under review.

Revenues at the Import segment — consisting of outlets that sell vehicles manufactured primarily by Toyota, Honda, Nissan and Hyundai — declined 5.2% to $1.6 billion. However, the segment’s income gained 4.2% to $81.4 million in the reported quarter.

Revenues at the Premium Luxury segment comprise stores that retail vehicles manufactured by Mercedes-Benz, BMW, Lexus and Audi. The sales figure increased 5.2% to $1.8 billion. Segmental income increased 12.2% to $95.3 million in the reported quarter.

Balance Sheet and Capex

AutoNation’s cash and cash equivalents were $51.1 million as of Jun 30, 2019, declining from $53.1 million as of Jun 30, 2018. The company’s inventory was valued at $3.52 billion as of Jun 30, 2019, compared with $3.6 billion recorded in the prior-year period.

At the end of the second quarter of 2019, non-vehicle debt was $2.4 billion compared with $2.7 billion in second-quarter 2018. At the quarter end, capital expenditure was $67.2 million compared with $103.2 million in the prior-year quarter.

Share Repurchase

During the second quarter of 2019, AutoNation repurchased 0.3 million shares of common stock for an aggregate purchase price of $11 million. As of Jul 19, 2019, AutoNation has approximately $219 million remaining under authorization for share repurchase and 89 million shares outstanding.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, AutoNation has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, AutoNation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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