AutoNation (AN) Down 20.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for AutoNation (NYSE:AN). Shares have lost about 20.6% 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’s Q4 Earnings & Sales Top Estimates

AutoNation delivered fourth-quarter 2019 adjusted earnings of $1.31 per share, beating the Zacks Consensus Estimate of $1.15. The reported figurewas also higher than the year-ago quarter’s $1.10 per share. The upside was mainly aided by increased income across all segments.

During the reported quarter, AutoNation’s revenues amounted to $5,549 million compared with the $5,412 million recorded in the prior-year quarter. However, the top-line figure missed the Zacks Consensus Estimate of $5,571 million.

In the quarter, same-store gross profit increased 5.6% year overyear to $895.6 million, driven by growth in all business segments–– new vehicles, used vehicles, customer care and customer financial services. Net income from continuing operations was $157.7 million compared with$92.9 million reported in fourth-quarter 2018.

During thereportedquarter, new-vehicle revenues declined 1.3% year over year to $3.02 billion. Used-vehicle revenues rose 10.9% to $1.34 billion from the year-ago quarter’s figure. Revenues in the parts and service business gained 2.7% to $891.3 million from that reported infourth-quarter 2018. Net revenues in the finance and insurance business amounted to $265.4 million, up 8.1% from the prior-year quarter.

Segmental Details

Revenues in the Domestic segment declined 4.5% year over year to $1.67 billion. The segment’s income increased19.2% to $65.2 million in the September-December quarter. The segment comprises stores that sell vehicles manufactured by General Motors (NYSE:GM), Ford and FCA US.

Revenues in the Import segment fell 1.4% to $1.62 billion. Nevertheless, the segment’s income rose 13.4% to $77.7 million in the reported quarter. The segment consists of outlets that sell vehicles manufactured primarily by Toyota, Honda 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 increased 8.7% to $2.06 billion. Segmental income jumped 23.1% to $112.5 million in the reported quarter.

Balance Sheet and Capex

AutoNation’s cash and cash equivalents were $42 million as of Dec 31, 2019, compared with $48.6 million as of Dec 31, 2018. The company’s inventory was valued at $3.3 billion as of Dec 31, 2019, compared with $3.65 billion in the prior-year period.

At the end of the fourth quarter, non-vehicle debt was $2.1 billion compared with $2.6 billion in the prior-year quarter. At the end of the quarter, capital expenditure was$87.3 million compared with $122 million inthe year-earlier quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -7.75% due to these changes.

VGM Scores

Currently, AutoNation has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, AutoNation has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.