Updated Research Report on AutoNation - Analyst Blog

On Apr 10, 2014, we issued an updated research report on AutoNation Inc. AN. This Zacks Rank #4 (Sell) stock reported all-time record-high adjusted earnings from operations in the fourth quarter of 2013.

The company posted a 24% rise in earnings per share to 83 cents in the fourth quarter from 67 cents in the same quarter of 2012. Earnings per share surpassed the Zacks Consensus Estimate by 6 cents.

Revenues increased 8.4% to $4.5 billion but marginally missed the Zacks Consensus Estimate of $4.6 billion. The revenue growth was attributable to strong performance in all business sectors.

As the market revives, the company's optimal brand and market mix should boost new vehicle sales. AutoNation's effort to expand its dealer network should help it outperform peers.

However, rising interest rates pose a threat to the company as a significant amount of the company's debt carries variable rate. Moreover, AutoNation's results are adversely impacted by a shift in mix from premium luxury and domestic vehicles to import vehicles, which have lower average selling prices due to the increased inventory levels of vehicles manufactured by Japanese manufacturers.

AutoNation reported positive earnings surprises in two of the trailing four quarters with an average beat of 2.63%. The Zacks Consensus Estimate for the company's 2014 earnings per share is $3.41, up 14.4% over 2013.

Key Picks from the Sector

Some better-ranked stocks in the auto and truck business are Lithia Motors Inc. LAD, Meritor, Inc. MTOR and BorgWarner Inc. BWA, all of which carry a Zacks Rank #2 (Buy).