AutoNation (AN) just put fresh numbers on the table, reporting third quarter revenue of US$7,010.3 million and net income of US$162.3 million, alongside a completed share buyback tranche that retired 3.39% of its stock.
The mixed earnings picture has come alongside a sharp move in AutoNation’s share price, with a 16.9% 1 month share price return contrasting with a 10.9% decline year to date and a 5.1% drop in 1 year total shareholder return. However, 3 and 5 year total shareholder returns above 38% suggest longer term holders have still seen gains, even as recent momentum has only just started to rebuild.
Scan how AutoNation’s earnings reset and buybacks compare with other potential opportunities by reviewing the hand picked 38 high quality undervalued stocks that score well on quality and valuation.
AutoNation now trades at a double discount, both to analyst targets and to an estimated intrinsic value, after a sharp 1 month rebound. Is the market’s caution on these reset earnings still warranted?
Most Popular Narrative: 14% Undervalued
AutoNation’s most followed valuation story pins fair value at $213.42 per share versus a last close of $184. This frames the current price as a discount to what the underlying cash flows might support once the modelled assumptions play through.
Continued mix shift toward high margin aftersales and customer financial services, which already account for around 80% of AutoNation profit and nearly half of gross profit from aftersales alone, supports the view that a larger share of future revenue and net margins will come from recurring, less cyclical lines that some investors may underappreciate.
Further scaling of AutoNation Finance, with the loan portfolio already at about US$2.67b, penetration at 18% of financed sales and quarterly profit rising to US$11m, creates room for higher per unit profitability and more recurring earnings that may not be fully reflected in current valuation multiples.
Find out how 3 investors see AutoNation as 14% undervalued.
Result: Fair Value of $213.42 (UNDERVALUED)
Still, the AutoNation story can break if parts and service momentum cools, or if tighter scrutiny of dealer pricing and financing terms bites into those high margin lines.
Find out about the key risks to this AutoNation narrative.
Next Steps
Sentiment on AutoNation is clearly split, with some investors focused on potential upside and others homing in on the known risks. Act quickly, review the full risk and reward breakdown, and pressure test your own thesis with the 3 key rewards and 1 important warning sign.
Looking for more investment ideas beyond AutoNation?
If AutoNation has sharpened your focus on valuation and quality, do not stop here. Broaden your watchlist now so you are not catching up later.
- Target resilient balance sheets and steadier financial profiles by scanning companies in the list of solid balance sheet and fundamentals (25 results).
- Hunt for potential mispriced opportunities by reviewing the 38 high quality undervalued stocks that combine quality metrics with discounted market prices.
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