5. AutoNation, Inc. (NYSE:AN)
Number of Hedge Fund Holders: 37
AutoNation, Inc. (NYSE:AN) through its subsidiaries is one of the largest automotive retailers in the United States. The company operates through three main business segments, including Domestic, Imports, and Premium Luxury services. It generates revenue by selling new and used vehicles, parts and services, and automotive finance and insurance services to its customers. As per its 2023 annual report, the company owned and operated 349 new vehicle franchises from 252 stores in the United States. The company also owned 53 branded collision centres, 19 used vehicle stores, and 3 parts distribution centres.
The competitive edge of the company lies in its extensive network of over 300 franchises and stores that are situated in major metropolitan cities of the country. The strategic location of its stores allows it to access a vast customer base. Moreover, the company has been focusing on its digital capabilities to enhance customer experience by enabling online vehicle browsing and purchasing.
The second quarter earnings were impacted by the CDK outage, however, the company was still able to maintain its margins and profitability. According to management, the outage impacted $1.55 in earnings per share during the quarter. Total revenue for the quarter amounted to $6.48 billion, a 6% decline year-over-year, however identical to the first quarter results. Gross profits were also impacted by the outage and were recorded to be $1.2 billion, an 18% decrease year-over-year. On the bright side, the company was able to maintain stable margins, with gross margins of 48% increasing 60 base points subsequently, due to improved service efficiency. Moreover, the sales of imported brands witnessed a 6% growth, demonstrating strong brand value despite tough market conditions. AutoNation, Inc. (NYSE:AN) achieved another notable milestone of bringing back its new vehicle inventory to pre-COVID levels and generated operating income of $319 million in the quarter.
Should you invest in AutoNation, Inc. (NYSE:AN)? Here’s the conclusion:
There is no doubt that the company faced some headwinds due to the CDK outage, however, what’s notable is management’s ability to maintain margins amidst challenging market situations. Moreover, if you look at the company’s 10-year record, you will see that it has been able to grow its revenue by 4% and net income by 7%. AN also presents an attractive entry point for investors as it is trading at 9 times its forward earnings, which is a 37% discount to its sector. Wall Street is also bullish on the stock. 14 analysts have a consensus Buy rating on the stock, with their median price target of $190 presenting a 14% upside from current levels.
AutoNation, Inc. (NYSE:AN) was held by 37 hedge funds in Q1 2024, with total stakes worth $685.054 million.
Bonhoeffer Capital Management stated the following regarding AutoNation, Inc. (NYSE:AN) in its first quarter 2024 investor letter:
What is interesting about the car dealer group of firms is that the EPS growth has been reasonably close despite how different the firm’s operating models were. AutoNation, Inc. (NYSE:AN), with few acquisitions and a lot of repurchases, had net income growth close to total auto US dealer sales growth of 3% compared to Lithia which was very acquisitive and issued more shares than it repurchased. As can be seen by stock price returns, the market discounted AutoNation’s approach of fewer acquisitions and more buybacks versus the more common acquisition and buyback approach.
