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On Feb 7, we upgraded AutoNation Inc. (AN - Analyst Report) to Outperform based on its optimal brand and market mix, which is driving the sales of new vehicles. Further, the upgrade was based on the company’s continued focus on dealership network expansion by investing in existing stores and service centers.

Why the Upgrade?

AutoNation posted a 31.4% increase in earnings per share to 67 cents in the fourth quarter of 2012 from 51 cents in the corresponding quarter last year. With this, profits surpassed the Zacks Consensus Estimate by a couple of cents.

Revenues for the quarter increased 13.5% to $4.2 billion. The growth in revenues was driven by strong performance of all the businesses. Revenues were ahead of the Zacks Consensus Estimate of $4.0 billion.

Following the release of the fourth quarter results, the Zacks Consensus Estimate for 2013 increased 1.4% to $2.91 per share. Meanwhile, the Zacks Consensus Estimate for 2014 increased 2.5% to $3.26 per share.

AutoNation is set to witness higher margins due to its product mix, focus on selling parts and services, such as insurance, finance and aftermarket product services. In addition, the company‘s new vehicle sales have been improving at a fast pace. In the fourth quarter of 2012, the company’s retail new vehicle unit sales increased 17%.

Other Stocks to Consider
Rush Enterprises, Inc. (RUSHA - Snapshot Report), Asbury Automotive Group, Inc. (ABG - Snapshot Report) and Group 1 Automotive Inc. (GPI - Snapshot Report) are performing well in the same industry where AutoNation operates. Rush Enterprises and Asbury Automotive are Zacks Rank #1 (Strong Buy) stocks while Group 1 carries a Zacks Rank #2 (Buy).

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