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AutoNation (AN) Down 2.9% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for AutoNation (AN - Free Report) . Shares have lost about 2.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AutoNation due for a breakout? 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 drivers.

AutoNation Q3 Earnings Top Estimates, Up Y/Y

AutoNation reported reported third-quarter 2020 adjusted earnings of $2.38 per share, which beat the Zacks Consensus Estimate of $1.63. Higher-than-expected new and used vehicle sales led to the outperformance. Precisely, revenues from new and used vehicles came in at $2,748 million and $1,517 million, surpassing the Zacks Consensus Estimate of $2,620 million and $1,430 million, respectively.

The bottom line also increased from the year-ago quarter’s $1.18 per share on the back of operational efficiency. SG&A expenses as a percentage of gross profit were 64.4% for the quarter under review, making an 800-basis point increase from the corresponding period of 2019.

For the reported quarter, AutoNation’s revenues amounted to $5,404.9 million compared with $5,461.2 million recorded in the prior-year period. However, the top line surpassed the Zacks Consensus Estimate of $5,220 million.

For the quarter under review, new-vehicle revenues declined 4.4% year over year to $2,748.4 million. Used-vehicle revenues rose 8.1% from the year-ago figure to $1,516.9 million. Revenues from the parts and service business slid 5.5% from the prior-year quarter to $852.8 million. Net revenues in the finance and insurance business amounted to $281.2 million, up from 266.2 million recorded in the year-ago quarter.

Despite coronavirus woes, the company is not pulling back on store expansion. Importantly, AutoNation intends to build in excess of 100 stand-alone pre-owned vehicle stores, with more than 50 by 2025-end. It plans to open five additional stores by 2021-end. The automotive retailer has sharpened focus on ramping up digital capabilities in response to changing buying behaviors of consumers amid the pandemic.

Segmental Details

Revenues in the Domestic segment were up 0.3% year over year to $1,734.5 million. The segment’s income increased 59.2% year over year to $111.9 million for 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 5.9% from the prior-year quarter to $1,621.5 million. However, the segment’s income rose 42.1% year over year to $123.5 million for 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 grew 2.7% from a year ago to $1,870 million. Segmental income also increased 61% year over year to $143.9 million for the reported quarter.

Financials

AutoNation’s cash and cash equivalents were $350.5 million as of Sep 30, 2020. The company’s inventory was valued at $2,482.5 million. At third quarter-end, non-vehicle debt was $2,089.7 million, down from $2,269.9 million in the comparable prior-year period. Capital expenditure for the quarter amounted to $37.3 million. Encouragingly, it increased the share-buyback authorization to $500 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 20.28% due to these changes.

VGM Scores

Currently, AutoNation has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, 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. Notably, AutoNation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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