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AutoNation (AN) Lags on Dip in New-Vehicle Sales & Cost Woes

Zacks Equity Research

On Jan 2, we issued an updated research report on AutoNation, Inc. AN.

The U.S.-based automotive retailer has been struggling with plunging new vehicle sales. In the last reported quarter, it witnessed an 8.1% year-over-year decline in new vehicle unit sales while the gross profit declined 13%. Huge availability of off-lease used vehicles contributed to the decline in new vehicle sales. Further, a similar trend is anticipated to continue in the coming quarters as well. With an aim to balance the loss by new vehicles sales, the company is launching branded products under the finance and insurance (F&I) business. The latest launches are expected to contribute to drive AutoNation’s financials.

In third-quarter 2018, the company reported adjusted earnings per share of $1.24, missing the Zacks Consensus Estimate of $1.25. Quarterly revenues declined 1.5% year over year to $5.4 billion. The top line also lagged the Zacks Consensus Estimate. During the reported quarter, revenues generated by the Used-vehicle, F&I, and Parts and service businesses soared year over year while new-vehicle revenues witnessed a decrease.

AutoNation, Inc. Price and Consensus

AutoNation, Inc. Price and Consensus | AutoNation, Inc. Quote

Moreover, AutoNation’s profit margin is hurt by rising Selling, General and Administrative (SG&A) expenses. In third-quarter 2018, its SG&A expenses rose to roughly $626 million compared with $608 million recorded a year ago. The expenses majorly consisted of salary and store compensations, commissions and advertising. In fourth-quarter 2018, expenses are expected to rise further, owing to costs related to Hurricane Michael and continued investments for brand extension initiatives. In fact, on the back of such costs, AutoNation no longer projects flat rise in yearly SG&A to gross profit in 2018.

However, its business expansion through acquisitions, investments and store openings will drive the company’s financials in the medium-to-long term. Further, AutoNation’s One Price strategy for used-vehicles enables it to leverage on centralized capabilities such as centralized pricing and appraisals.

Over the past 60 days, the Zacks Consensus Estimate for the company’s fourth-quarter and 2018 earnings has moved down 5% and 1.3%, respectively. Further, in the past year, shares of AutoNation have lost 34.1% compared with the industry’s decline of 25.9%.


Zacks Rank & Stocks to Consider

AutoNation currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the broader auto sector are Fox Factory Holding Corporation FOXF, CarGurus, Inc. CARG, and O’Reilly Automotive, Inc. ORLY, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fox Factory has an expected long-term growth rate of 5%. Share price of the company has increased 45.1% in the past year.

CarGurus has an expected long-term growth rate of 5%. Shares of the company have gained 9.6% in the past year.

O’Reilly has an expected long-term growth rate of 4%. Over the past year, shares of the company have gained 32.2%.

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