Morningstar

Well-Timed Share Repurchases Drive AutoNation’s Q4 EPS Growth

The buybacks more than offset a 25% decline in pretax income.

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Securities In This Article
AutoNation Inc
(AN)

Narrow-moat AutoNation AN used share repurchases to boost its fourth-quarter adjusted EPS by 10.6% year over year to $6.37, which beat the $5.83 Refinitiv consensus. Same-store revenue rose 1.2% on high-single-digit growth from new vehicles and service. We are not changing our fair value estimate of $149 but will revisit all modeling assumptions after the 10-K is filed. We calculate that excluding buybacks, EPS would have fallen 16% to $4.84. The buybacks more than offset a 25% decline in pretax income brought on by lower gross profit dollars in all segments except service, which grew 12.3%. These trends make sense, given that the sector is seeing declines in new-vehicle profitability (AutoNation’s new-vehicle gross profit per unit fell by 12.7% to $5,633) as inventory slowly improves from the chip shortage and that shortage drastically hurting used-vehicle affordability for both retailers and consumers. Used-vehicle GPU fell by 10.5% and used unit volume declined 9.2% versus a 4.3% rise in new-vehicle volume. Pricing rose for both new (up 3.4%) and used (up 2%) to $52,394 and $29,780, respectively.

EPS growth was entirely from buybacks, but we are not critical of the move, as management timed its purchases well and bought comfortably below our fair value estimate. AutoNation bought back 4.6 million shares in the quarter, 29.5% of the full-year buyback volume, at an average price by our calculation of $108.09 per share, far below where the stock traded on Feb. 17. Full-year repurchases totaled $1.7 billion at $109.63 per share on average, which equated to buying back 25% of the company in 2022. AutoNation has long been a prolific buyer of its stock, and we expect that to continue in 2023 and beyond. Actual shares outstanding at year-end were 47.6 million (50.1 million diluted). Management sees “strong potential” for 2023 U.S. industry sales exceeding 15 million, which is reasonable but a bit on the optimistic side versus our expectation and many others we’ve seen.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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