3. AutoNation, Inc. (NYSE:AN)
Number of Hedge Fund Holders: 31
AutoNation, Inc. (NYSE:AN) is a Florida-based automotive retailer that operates through three segments – Domestic, Import, and Premium Luxury. On July 21, the company announced a share repurchase program to buy back up to $1 billion of its common stock. AutoNation, Inc. (NYSE:AN) repurchased 3.7 million shares during Q2 for an aggregate price of $404 million. The company’s Q2 GAAP EPS of $6.48 exceeded Street consensus by $0.19. The stock gained 0.41% on July 27.
On July 25, Seaport Global analyst Glenn Chin upgraded AutoNation, Inc. (NYSE:AN) to Buy from Neutral with an $180 price target. The analyst sees a “prolonged outsized earnings cycle” for AutoNation, Inc. (NYSE:AN), observing that sector sales are already at recessionary levels and there is “deep pent-up demand” with thin inventories. The stock’s valuation is “extremely depressed” and the analyst is confident about the firm’s new CEO Manley. He believes AutoNation, Inc. (NYSE:AN)’s shares are “too compelling NOT to upgrade” given his long-term bullish view on franchise auto retailers.
Among the hedge funds tracked by Insider Monkey, 31 funds were long AutoNation, Inc. (NYSE:AN) at the end of Q1 2022, compared to 37 funds in the prior quarter. Cliff Asness’ AQR Capital Management is the leading shareholder of the company, with 942,405 shares worth about $94 million.
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 lay out a single dollar of cash. It has a dramatic impact on my estimates of free cash flow 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 super centers) 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.”
