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AutoNation (AN) Up 17.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for AutoNation (AN - Free Report) . Shares have added about 17.6% 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 the most recent earnings report in order to get a better handle on the important catalysts.

AutoNation Q1 Earnings & Revenues Surpass Estimates

AutoNation reported first-quarter 2020 adjusted earnings of 91 cents per share, which beat the Zacks Consensus Estimate of 70 cents on the back of higher-than-expected revenues. However, the reported figure declined from the year-ago quarter’s $1.05 per share. Heightened coronavirus woes and the enforcement of stay-at-home orders — especially in March — dented vehicle demand, in turn hurting the automotive retailer’s year-over-year performance.

During the reported quarter, AutoNation’s revenues amounted to $4,667 million compared with $4,981.8 million recorded in the prior-year period. However, the top line surpassed the Zacks Consensus Estimate of $4,555 million.

Same-store revenues and gross profit decreased 4.9% and 3% year over year to $4,659.6 million and $812.4 million, respectively.

During the reported quarter, new-vehicle revenues declined 8.6% year over year to $2.28 billion. Used-vehicle revenues also fell 6.8% from the year-ago figure to $1.25 billion. Revenues from the parts and service business remained unchanged from the prior-year level of $876 million. Net revenues in the finance and insurance business amounted to $235.8 million, down 0.3% from the prior-year quarter.

Segmental Details

Revenues in the Domestic segment declined 5.4% year over year to $1.48 billion. The segment’s income also decreased 3.7% year over year to $54.1 million in the January-March quarter. The segment comprises stores that sell vehicles manufactured by General Motors, Ford and FCA US.

Revenues in the Import segment were down 9% from the prior-year quarter to $1.36 billion. The segment’s income also declined 9.2% year over year to $65.9 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 6.8% from a year ago to $1.61 billion. Segmental income also slipped 4.9% year over year to $80.2 million in the reported quarter.

Financials & Share Buyback

AutoNation’s cash and cash equivalents were $411 million as of Mar 31, 2020 compared with $42 million on Dec 31, 2019. The company’s inventory was valued at $3.67 billion as of Mar 31, 2020 compared with $3.71 billion in the prior-year period. At first quarter-end, non-vehicle debt was $2.52 billion compared with $2.43 billion in the comparable prior-year period. Capital expenditure during the quarter amounted to $30 million.

During the quarter, it bought back 2.5 million shares for an aggregate purchase price of $80 million. As of May 8, 2020, the firm had $139 million remaining under the share repurchase authorization. However, amid coronavirus-led uncertainty and financial crisis, AutoNation has suspended the share repurchase program.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted -117.36% due to these changes.

VGM Scores

Currently, AutoNation has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. 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 broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. 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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