Bull of the Day: AutoNation (AN)
AutoNation (AN) is a Zacks Rank #1 (Strong Buy) that is the largest automotive retailer in the United States. The company offers vehicle maintenance and repair services, vehicle parts, extended service contracts, vehicle protection products, and other aftermarket products.
About the Company
Auto Nation employs over 21,000 and is headquartered in Fort Lauderdale, FL. The company was founded in 1991 and at the end of 2020, operated 315 new vehicle franchises from 230 stores located primarily in metropolitan markets in the Sunbelt region.
AutoNation’s business is divided into three operating segments — Domestic (33% of revenues in 2020), Import (30.4%) and Premium Luxury (36.6%).
AN is valued at $7.5 billion and has a Forward PE of 9. The company holds a Zacks Style Score of “A” in Value, but “D” in Momentum.
Q1 Earnings and Price Action
In late April, the company reported strong earnings, seeing beats on both the top and bottom lines. Q1 came on at $2.85 v the $1.80 expected, a 55% beat above Zacks estimates. Revenues came in at $5.9B v the $5.06B expected.
The company saw big year over year numbers:
- New vehicle unit sales +22% y/y
- Retail used vehicle unit sales +28% y/y
- Wholesale Rev +21.1% y/y
- Used vehicle sales +40.1% y/y
- Finance and insurance +32.7% y/y
While these were bounce back numbers from when COVID started to shutter things a year ago, they are impressive nonetheless. The earning beat was the ninth straight, which has helped drive the stock over 90 % higher since he beginning of 2020.
AutoNation, Inc. Price and EPS Surprise
AutoNation, Inc. price-eps-surprise | AutoNation, Inc. Quote
Estimates Headed Higher into Earnings
The earnings momentum looks to continue as we head into next quarter. Over the last 90 days, estimates are headed higher. For next quarter, estimates have gone from $1.93 to $2.37, or up 23%. For the current year, estimates have ticked 37% higher, from $7.48 to $10.15.
The company will report on July 20th, with the consensus at $2.53. This is a slight downtick from the $2.54 expected, but recent strength in the car market could bring better than expected numbers.
Industry Strength
Seasonality in Q2 usually means new car sales volumes are trending higher and data from earlier in the quarter showed just that, with April SAAR numbers coming in high. Pricing has alos remained very strong, especially for the used car market which saw a 62% uptick in April year over year.
While production issues are bringing lower volumes, car dealers are able to sell above sticker price. This creates a negative short-term outlook that has stalled earnings estimates. However, a positive earnings number will prove Auto Nation’s ability to manage the tight supply could be a tailwind for stock in the back half of the year.
The Technical Take
After pulling back about 8% from 2021 highs, the stock has rallied back to the 21-day moving average. Still up 35% on the year, investors will likely hold the stock at current levels until earnings come out.
If the bullish case plays out, look for the stock to pop above the 50-day at $99 and continue to all-time highs at $108.
However, if the bearish scenario hits earnings and the company failed to navigate the inventory issue, look for a break down to the 200-day. Bulls should step in at that level, which is $79
In Summary
Earnings on deck and investors should expect an EPS beat despite current issues with inventories. Even if the company shows difficulty with this past quarter, the future is looking bright as the auto shortfall surpasses next year. Bulls should be on the lookout for any dips or looking to buy the break back over $100 and ride the stock to all-time highs.
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