Headquartered in Fort Lauderdale, Florida, AutoNation, Inc. (AN) is one of the largest automotive retailers in the U.S. , explains analyst Garrett Nelson in CFRA Research's flagship newsletter, The Outlook.
The company offers a range of automotive products and services, including new vehicles, used vehicles, parts and automotive services, as well as automotive finance and insurance products. AutoNation’s stated aim is to be the best-run, most profitable auto retailer in the U.S.
Our Buy opinion reflects a valuation we consider attractive both on an absolute and relative basis at current levels and a view that management and operational-related headwinds are behind the company.
While U.S. light vehicle sales are poised to decline precipitously in 2020 due to Covid-19, we expect volumes to rebound sharply in 2021, and because AN has aggressively cut costs, the combination of revenue growth and margin improvement will likely translate to significant earnings improvement in the coming quarters.
Longer term, we think AN’s plan to build over 100 pre-owned auto stores is likely to be a major growth driver. The basis of our 12-month price target of $80 is a P/E multiple of 12.0x applied to our 2021 EPS estimate of $6.65, a discount to AN’s 10-year average forward P/E multiple of 13.8x.
Risks to our recommendation and target price include lower valuation multiples for auto retailers, increased dealer incentive spending, changes in gasoline prices and interest rates, vehicle demand, as well as pricing for new and used vehicles.
