AutoNation Still a Buy Following Smash-Hit Earnings Quarter

If you're looking for a company that had a great quarter, look no further than AutoNation (NYSE:AN), who recently turned in its fourth-quarter results.  With 315 retail operations scattered throughout the United States, most of them were firing on all cylinders as the company brought in some fantastic numbers. The company did get some help, as it turns out, from tailwinds brought about by overall market conditions.

No Lemons on This Lot

By the numbers, the company had an excellent quarter, which is something of a surprise in its own right given how things are going overall these days. The company brought in earnings per share of $2.43, against an expected figure of $2.03 from Investing.com analysts. Meanwhile, revenue also turned in a beat as the company brought in $5.79 billion in revenue against an expected $5.56 billion.

Great news by itself, but looking at the components of said news suggests that AutoNation is a much stronger operation than some may have foreseen. Same-store sales were up fully 5% against previous figures, which suggests there's a surprisingly brisk demand for used cars despite the prominence of the everything-at-home doctrine. Moreover, sales gains were spotted in every major segment of its sales operations; domestic car sales were up 7.2% against the preceding year's figures, while import cars were up 3.5%, and luxury cars of every origin were up 4.5%. The company even managed to get more out of its sales, as the company saw operating profits increase as well.

There were even some fresh advantages detailed as the company revealed its earnings figures. The company is set to roll out at new stock buyback plan valued at $1 billion, a point that some analysts were already expecting to manifest thanks to the current nature of the company's balance sheet. It also left its share of the Vroom online car-selling platform behind, with profit to the tune of $165 million as a result.

Skeptical Analysts Holding Fast

While this quarter was definitely a winner for AutoNation, and with good reason, the analyst community—as based on our latest research—is a bit more skeptical. The overall sentiment has been trending bearish for the last three months, though any sliding has been reduced since.

The company has been rated a consensus “hold” for the last six months. Six months ago, the company had one “sell” rating, three “hold” and three “buy” to its credit. Three months ago, that improved slightly to one “sell”, four “hold” and four “buy.” A month ago, though, a fundamental shift appeared as the company now held one “sell”, five “hold” and three “buy.” That's where we are today as the ratings are fundamentally unchanged between this month and last.

The price target, meanwhile, seems to have plateaued. It went from $56.33 six months ago to $59.57 three months ago, and then to $62.13 a month ago where it remains today. However, that $62.13 actually represents downside risk for the first time in six months, as the company currently trades at $82.84.

Backing a Winner

There's been a lot going for AutoNation so far, which makes it odd that the analysts seem so skeptical about buying in here. The company's stock has been on an upward cant for most of the last year now—it took the same losses almost everyone else did back in March 2020, but recovered rapidly—and with a buyback in the works, it's a safe bet that more gains will be had, if mainly in the short term. The impact of low interest rates certainly helped as well, allowing more consumers to feel better about taking out a loan to buy that new car.

In fact, one point seldom mentioned is that AutoNation recently retooled its online shopping experience, offering up the ability to not only search the company's inventory without setting foot on a lot but also offering estimates for trade-ins, payment options, the ability to upload key items of paperwork and several other functions. Known as “AutoNation Express,” it represents what businesses desperately needed back in 2020: a robust, fully-featured online shopping experience.

The impact of such a feature in 2021 may not be so clear, however; with customers eager to get out of their houses after spending the better part of a year on occasional lockdown, the need for online platforms may slip a bit. Plus, there are only so many cars that can be sold at any one time, and with demand largely satisfied for many for now, those sales may start to slow. Still, with a new online selling tool, a buyback plan in place, and interest rates down around the bargain basement level, AutoNation may continue to make gains over the short-term. That makes this one certainly worth considering adding to your portfolio.