AutoNation Delivers Q2 Beat, But Surprises With Management Change

While AutoNation, Inc. AN reported healthy second-quarter earning, its stock is vulnerable to any industry downturn, according to Morgan Stanley.

The Analyst

Morgan Stanley’s Armintas Sinkevicius maintained an Underweight raring on AutoNation, with a price target of $35.

The Thesis

AutoNation reported adjusted EPS at $1.20, beating the consensus expectation of $1.07. The company’s EPS was about 12% higher than consensus, Sinkevicius said in the note.

AutoNation’s EPS is particularly impressive, given that U.S. Retail SAAR declined by around 4% year-on-year, while New Vehicle Units came is about 4% lower than consensus.

AutoNation’s management shuffle came as a surprise, with CEO Carl Liebert being replaced by former CFO Cheryl Miller. Liebert had taken over as CEO only four months back.

Sinkevicius said the announcement could be received positively, since investors were familiar with Miller and the appointment represents “a continuation of the previous management team's strategy.”

Despite these positives, AutoNation is among the “most expensive traditional auto dealers,” given its scale and size and would be “particularly vulnerable” in case of another industry downturn, the analyst said.

Price Action

Shares of AutoNation traded higher by 12.4% to $47.18 at time of publishing on Tuesday.