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AutoNation (AN) Up 10.6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for AutoNation (AN - Free Report) . Shares have added about 10.6% 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 its most recent earnings report in order to get a better handle on the important catalysts.

AutoNation Q2 Earnings Top Estimates, Up Y/Y

AutoNation reported second-quarter 2020 adjusted earnings of $1.41 per share, which beat the Zacks Consensus Estimate of 36 cents. Higher-than-expected revenues from new and used vehicle sales led to the outperformance. Precisely, revenues from new and used vehicles came in at $2.26 billion and $1.32 billion, surpassing the Zacks Consensus Estimate of $1.97 billion and $1.01 billion, respectively.

The bottom line also increased from the year-ago quarter’s $1.20 per share on the back of operational efficiency. SG&A expenses came in at $547.9 million, lower than $637 million in the prior-year quarter.

During the reported quarter, AutoNation’s revenues amounted to $4,533 million compared with $5,343.8 million recorded in the prior-year period. However, the top line surpassed the Zacks Consensus Estimate of $4,039 million.

Same-store revenues and gross profit decreased 13.8% and 9.4% year over year to $4,532.6 million and $795.2 million, respectively.

During the quarter under review, new-vehicle revenues declined 18.4% year over year to $2,261.3 million. Used-vehicle revenues also fell 4% from the year-ago figure to $1,324.5 million. Revenues from the parts and service business slid 23.5% from the prior-year quarter to $689.9 million. Net revenues in the finance and insurance business amounted to $246.4 million, down 3.4% from the prior-year quarter.

Despite coronavirus woes, the company is not pulling back on store expansion. Importantly, AutoNation announced planned expansion of stand-alone pre-owned vehicle sales and service centers in the United States. It plans to build at least 20 additional stores over the next three years. The automotive retailer has sharpened focus on ramping up digital capabilities in response to the changing buying behaviors of consumers amid the pandemic.

Segmental Details

Revenues in the Domestic segment declined 13% year over year to $1,486 million. The segment’s income increased 24.6% year over year to $82.1 million in the quarter under review. The segment comprises stores that sell vehicles manufactured by General Motors, Ford and FCA US.

Revenues in the Import segment were down 18.6% from the prior-year quarter to $1,325.3 million. The segment’s income was up 8.5% year over year to $88.3 million in the reported quarter. The segment consists of outlets that sell vehicles manufactured primarily by Toyota, Honda, Subaru, Hyundai and Nissan.

The Premium Luxury segment comprises stores that sell retail vehicles manufactured by Mercedes-Benz, BMW, Lexus, Jaguar Land Rover and Audi. Sales in the segment fell 14.1% from a year ago to $1,564.8 million. Segmental income also slipped 6.4% year over year to $89.2 million in the reported quarter.

Financials

AutoNation’s cash and cash equivalents were $257.3 million as of Jun 30, 2020. The company’s inventory was valued at $2,432.3 million. At second quarter-end, non-vehicle debt was $2,090.4 million, down from $2,440.1 million in the comparable prior-year period. Capital expenditure during the quarter amounted to $24.6 million. Amid coronavirus-led uncertainty and financial crisis, AutoNation has tapped brakes on the share repurchase program.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 63.85% due to these changes.

VGM Scores

Currently, AutoNation has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise AutoNation has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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