Morgan Stanley Trims Estimates On AutoNation

Morgan Stanley is trimming estimates on AutoNation AN based on a "noisy" quarter. It is rolling forward the 3Q miss and lowering expectations for 4Q, while trimming 2011e to $1.95 from $2.00 due to the lower starting point in 2010. While 3Q fell short of expectations, particularly with regard to SG&A, it was impacted by a few noisy items, including acquisitions, timing of manufacturer incentive recoveries ($20 mm or $0.08 EPS) and a higher level of advertising in a bid to boost market share. Similar to other dealers, AN also reported pressure on gross margins due to excess inventories for new vehicles, which we find a little hard to understand, given still low levels of inventory across the industry and near-record-high pricing levels. Morgan Stanley has an Overweight rating on AN with a $26 PT AN is trading higher at $23.38