3. AutoNation, Inc. (NYSE:AN)
Number Of Hedge Fund Holders: 37
AutoNation, Inc. (NYSE:AN) is an American automotive retailer based in Fort Lauderdale, Florida, that provides new and pre-owned vehicles and associated services in the United States. The recent acquisitions of Peacock Automotive and Priority 1 Automotive are set to add $380 million and $420 million, respectively, to AutoNation, Inc. (NYSE:AN)’s annualized revenues.
As of Q4 2021, 37 hedge funds in the database of Insider Monkey held stakes worth $727.14 million in AutoNation, Inc. (NYSE:AN), compared to 29 in the previous quarter worth approximately $680.9 million. Of these, Arrowstreet Capital reported holding over 1.28 million shares worth $150.59 million in AutoNation, Inc. (NYSE:AN).
Earlier this April, Truist analyst Stephanie Moore upgraded AutoNation, Inc. (NYSE:AN) to Buy from Hold with a price target of $140, up from $130. According to the analyst, the company has set the auto retail industry standard in terms of “consistent solid execution”, and after it set its 8th consecutive record quarter, she has even greater confidence in her 2023 earnings assumptions.
Here is what Black Bear Value Partners has to say about AutoNation, Inc. (NYSE:AN) in its Q4 2021 investor letter:
“AutoNation is an example of what can happen when you marry excellent business operations with best-in-class capital allocation. Mike Jackson and his team have been able to reinvest in the business, grow ancillary businesses, and acquire new dealerships all while buying back TONS of stock when the opportunity presents itself (27% of the company over the trailing 12 months ending 9/30). Other companies should take notice and use AutoNation as a case study in compounding value for shareholders while also being great corporate citizens. Auto dealers have been over-earning on car sales due to a lack of inventory from the semiconductor shortage. It seems obvious that when the semiconductor shortage is resolved, more cars will become available and unit profitability will be reduced. In short, their earnings will likely decline in the 12 months following the inventory shortage and then resume their rise. Our longer-term horizon allows us the ability to own the business and not focus on a short-term issue. The semiconductor issue is likely to persist thru 2022 though this is a guess. Ultimately our long-term thesis on the business remains intact. If the business can extend its moat, maintain its pricing power, and remain important to both its customers and suppliers we will do fine. Over the last 12 months ending September 30, 2021, the company has bought back 27% of the shares at a cost of ~$81.50. Given the stock has been trading at $100+ it has been a good investment on a mark-to-market basis. More importantly, we own 27% more of the company without having to layout a single dollar of cash. It has a dramatic impact on my estimates of free-cashflow on a per-share basis. Looking forward the Company should be able to generate $10-$14 per year in free cash flow which means we likely own it somewhere between an 8-12% yield. Additionally, if AutoNation achieves modest levels of success with AutoNation USA (new used-car supercenters) it could add another $6-$12 of per-share value to the business. Note that at current prices, very little in the way of AutoNation USA’s success is priced in.”
