On Mar 4, 2015, we issued an updated research report on AutoNation Inc. AN. The company had reported a positive earnings surprise of 10.87% in the last quarter.
AutoNation posted a 22.9% rise in earnings per share to $1.02 in the fourth quarter of 2014 from 83 cents in the year-ago comparable quarter. Earnings per share also surpassed the Zacks Consensus Estimate of 92 cents. Revenues increased 11.6% year over year to $5.05 billion, beating the Zacks Consensus Estimate of $4.9 billion. The upside can be attributed to strong performance at all the business sectors of the company.
AutoNation is positioned to benefit from the recovery in the auto market, backed by its optimal brand and market mix as well as a disciplined cost structure. In 2014, the company’s new vehicle unit sales increased 8.6% year over year. AutoNation expects its new vehicle sales in the U.S. to be above 17 million units in 2015, banking on its innovative array of products and better access to affordable credit.
Moreover, AutoNation pursues an aggressive store expansion strategy to boost sales. In 2014, the company acquired five stores and related assets. In Jan 2015, AutoNation acquired a Mercedes-Benz store in Reno, NV and in Feb 2015, it acquired a Volkswagen store in the Atlanta, GA market. The combined annual revenue from these two stores is estimated to be $120 million.
Further, AutoNation consistently enhances shareholder value through buybacks. During 2014, AutoNation repurchased 9.4 million shares for an aggregate price of $485 million. As of Dec 31, 2014, AutoNation had $280.6 million remaining under its share repurchase program. As of Feb 2, 2015, AutoNation had around 113 million shares outstanding.
However, any rise in interest rates can increase the interest expenses of the company. Moreover, the highly competitive nature of the industry is a challenge for the company. In addition, AutoNation’s performance is dependent on automakers including Ford Motor Co. F, Honda Motor Co., Ltd. HMC, Toyota Motor Corporation TM and others.
The company depends on these automakers for new vehicle inventory. The automakers need to supply adequate attractive, high-quality and desirable product mix at the right time in order to satisfy the rising demand of customers. Any fluctuation in supply can adversely affect the results of AutoNation.
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