On Wednesday, AutoNation Inc. (NYSE:AN) was downgraded from Strong Buy to Buy by a CFRA analyst, despite an increase in the price target from $190.00 to $220.00.
The adjustment reflects a revised 12-month target, now based on a price-to-earnings (P/E) ratio of 11.0x for the year 2025, which represents a premium over AutoNation's 10-year mean forward P/E of 10.1x. The upgrade in the target price is attributed to anticipated superior bottom line growth over the intermediate term.
The analyst has also revised the adjusted earnings per share (EPS) estimates downwards to $17.50 from $20.25 for the year 2024 and to $20.00 from $21.25 for the year 2025. This comes after AutoNation reported a second-quarter adjusted EPS of $3.99, a 37% decrease from the previous year and below the consensus estimate of $4.18.
The earnings miss was primarily due to a weaker-than-expected top line, with sales declining 6% to $6.48 billion, which was $240 million below the consensus. Additionally, the company's gross margin contracted 150 basis points to 17.9%, although this was in line with expectations.
The revenue shortfall in the second quarter was largely attributed to decreased sales volumes of both new and used vehicles, which fell by 2% and 5% respectively.
Despite the downgrade in rating due to valuation concerns, the analyst noted AutoNation's aggressive share repurchase strategy in the second quarter. The company accelerated its buybacks, purchasing 2.0 million shares compared to just 0.2 million in the first quarter.
The analyst highlighted AutoNation's history of share buybacks, pointing out that the company has retired over half of its share count since the end of 2020. This strategy is expected to support the company in achieving stronger EPS growth compared to its peers.
In other recent news, AutoNation has seen significant developments. The company reported notable earnings and revenue results, with both new and used vehicle sales experiencing an uptick. Furthermore, AutoNation announced a $1 billion share repurchase program, reflecting its strong financial health.
In the realm of personnel changes, AutoNation has appointed Claire Bennett as an independent director to its Board of Directors. Bennett's extensive experience in senior roles across various industries is expected to bring valuable insight to the company.
In terms of analyst upgrades and downgrades, Evercore ISI maintained an Outperform rating for AutoNation, raising its price target to $220 from the previous $200. This adjustment reflects confidence in AutoNation's ability to sustain robust earnings amidst the ongoing pricing normalization in the automotive industry.
In other company news, AutoNation faced significant disruptions due to a cyber attack on CDK's software system, which is essential for operations at over 15,000 car dealerships across the United States. Despite this setback, AutoNation and other dealers have resorted to manual processes to maintain business continuity. The impact of this incident on U.S. new light vehicle sales is yet to be fully determined.
InvestingPro Insights
Amidst the analyst's revised outlook for AutoNation Inc. (NYSE:AN), current real-time data from InvestingPro provides additional context for investors. AutoNation is trading at a low earnings multiple with a P/E Ratio of 8.35, which is below the analyst's future P/E target of 11.0x for 2025. This could indicate that the stock is currently undervalued relative to its earnings capacity. Furthermore, the company's management has been actively supporting its stock price through an aggressive share repurchase program, as evidenced by the significant buyback activity in the recent quarter. This aligns with the InvestingPro Tip that highlights management's commitment to buying back shares.
Despite the downward revisions in earnings, AutoNation remains a prominent player in the Specialty Retail industry, and analysts predict the company will be profitable this year, which is corroborated by a solid track record of profitability over the last twelve months. Additionally, the stock has experienced a large price uptick over the last six months, with a 28.46% price total return in that period, underscoring a strong performance in the market.
Investors looking for deeper insights may find value in the additional 13 InvestingPro Tips available for AutoNation on InvestingPro. To access these tips and more detailed analytics, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.