Why Should You Steer Clear Of AutoNation (AN) Stock Now?

On Jun 27, Zacks Investment Research has downgraded AutoNation Inc. (NYSE:AN) to a Zacks Rank #5 (Strong Sell).

The company reported earnings of 97 cents per share in the first quarter of 2017, higher than 7 cents per share from the year-ago quarter. Earnings also topped the Zacks Consensus Estimate of 91 cents.

For the same period, revenues inched up 0.4% year over year to $5.14 billion, but missed the Zacks Consensus Estimate of $5.31 billion.

The financial position of AutoNation is deteriorating. With brand expansion plans, its capital expenditure is expected to increase by $500 million, over the next few years. In the last reported quarter, the same expenditure rose to $86.8 million compared with $50.7 million in the year-ago period.

AutoNation is also facing pressure in its used vehicles segment. For the last reported quarter, this segment’s revenue was almost flat year over year at $1.24 million. The used vehicles margin is in stress due to inventory that was previously on sales hold.

The company had roughly 7% of its used vehicle units on hold at the end of 2016, due to the Takata airbag recall. The burden is expected to continue with an improvement projected in the second quarter of 2017.

AutoNation has also underperformed the Zacks categorized Retail/Wholesale Auto/Truck industry in the last three months. Its shares have fallen 4.8% during the period, whereas the industry declined 3.4%.

AutoNation, Inc. Price and Consensus

AutoNation, Inc. Price and Consensus | AutoNation, Inc. Quote

Key Picks

AutoNation currently carries a Zacks Rank #5.

Better-ranked companies in the auto space are Cummins Inc. (NYSE:CMI) , Fox Factory Holding Corp. (NASDAQ:FOXF) and Volkswagen (DE:VOWG_p) AG (OTC:VLKAY) . Cummins sports a Zacks Rank #1 (Strong Buy), while Volkswagen and Fox Factory Holding carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cummins has an expected long-term growth rate of 11.7%.

Fox Factory Holding has an expected long-term growth rate of 15.6%.

Volkswagen has an expected long-term growth of 17.5%.

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