AutoNation Cuts Q2 EPS View: Buy, Hold or Sell the Stock?

AutoNation, Inc. AN has lowered its second-quarter 2024 quarterly earnings forecast following a cyberattack on software provider CDK Global on Jun 19, 2024. The auto retailer cut its guidance for earnings per share by $1.50 to $3.15-$3.30 for the three months ending Jun 30.

Despite the negative impact of the CDK outage on AutoNation's business and productivity, the incident is not expected to have a significant impact on the company's overall financial condition or operations. The company has regained access to its dealer management system and core functions and anticipates completing the restoration of the remaining ancillary systems by the end of July.

With the guidance trimmed for the second quarter of 2024, should investors consider selling the stock? Or is it worth retaining in your portfolio? Let's find out.

Soundly Managed Risk & Expansion Efforts to Drive Prospects

A diversified product mix and multiple streams of income (from the sale of new and used vehicles, after-sales services and customer financial business) reduce the risk profile of AutoNation and augur well for its earnings and sales growth.

A strong geographical footprint, large dealer network and store expansion efforts are praiseworthy and allow the company to reach and serve a broad customer base. In the last reported quarter, the company expanded its used vehicle store footprint in the United States by opening four additional stores.

Enhanced digital solutions are expanding the company's market presence, with initiatives like next-day ship-to-home, curb-side pick-up and buy-online, pick-up in-store (BOPIS) gaining traction. Omni-channel marketing is integral to AutoNation's long-term strategy and customer preference for the model is expected to increase its revenues. The launch of AutoNation Express, facilitating online vehicle buying and selling, signifies a leap in digitization.

Acquisitions to Support Top-Line Growth

Buyouts of Priority 1 Automotive and Peacock Automotive's 11 dealerships have boosted AutoNation's annualized revenues. The acquisition of four dealerships from Moreland Auto Group is also fueling AN's annual revenues.

Additionally, the CIG Financial buyout has unlocked a significant upside for AutoNation's F&I segment. The acquisition seeks to take AutoNation's relationship with its customers beyond the buying experience and throughout the vehicle ownership life cycle. The acquisition of RepairSmith has expanded the company's range of after-sales services.

Conclusion

Despite a stretched balance sheet and rising competition, AutoNation has consistently beat earnings estimates in recent quarters. Better management of risk, rising geographical footprint, large dealer network, store expansion efforts and acquisitions have corroborated the company's growth. In light of these factors, investors who already have this Zacks Rank #3 (Hold) stock in their portfolio should retain it.

Key Picks

Some better-ranked stocks in the auto space are Suzuki Motor Corporation SZKMY, Honda Motor Co., Ltd. HMC and American Axle & Manufacturing Holdings, Inc. AXL, each sporting a Zacks Rank #1 (Strong Buy) at present.

The consensus estimate for SZKMY's 2025 earnings suggests year-over-year growth of 2.09%. EPS estimates for 2025 and 2026 have improved 38 cents and 15 cents, respectively, in the past 60 days.

The Zacks Consensus Estimate for HMC's 2025 sales and earnings suggests year-over-year growth of 0.73%. EPS estimates for 2025 have improved 9 cents in the past 60 days.

The Zacks Consensus Estimate for AXL's 2024 sales and earnings suggests year-over-year growth of 3.05% and 544.44%, respectively. EPS estimates for 2024 have moved up 2 cents in the past 60 days. The same for 2025 has moved up 5 cents in the past 30 days.

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