AutoNation Inc.AN

Morningstar Rating

Stock Research and Analysis

by David Whiston, CPA, CFE

AutoNation's heavy concentration of sales in California and Florida will stunt revenue growth for the next several years. Despite this head wind, we believe the company's massive size and resulting economy of scale advantages will allow it to deliver Read more

Bulls Say

AutoNation's massive size provides some appealing economies of scale, illustrated by industry-leading operating margins.

AutoNation has been expanding its auto repair and financial services operations, which carry wider margins and are less cyclical than new-car sales.

The company is moving its product mix more toward better-selling import automakers and away from Detroit.

AutoNation is able to pay down debt even during the recession. Read more

Bears Say

About 55% of revenue is derived from new-car sales, leaving AutoNation vulnerable to the fluctuations of a viciously cyclical industry. This risk is greater for AutoNation as it gets a much larger share of its sales from California and Florida than the national average. These markets have been hit worse by the housing downturn.

We expect new-vehicle sales in the U.S. to stay low relative to the past 10 years. AutoNation has been unable to expand its market share without acquisitions, so sales are likely to fall in the short run.

The housing downturn will also reduce sales of high-margin pickup trucks and sport-utility vehicles.

Even consumers with good credit are having a harder time getting a car loan. It is unclear how long this difficulty will last.

Even the lucrative parts business cannot wholly offset declines in revenue from fewer vehicles sold. Read more

Strategy

With minimal to negative changes in revenue each year in normal economic times, AutoNation seeks to expand via acquisitions in large metropolitan areas, especially in the Sunbelt. Following an acquisition, Read more

Management

Mike Jackson became CEO in September 1999 and chairman in 2003, taking the reins from founder Wayne Huizenga, who brought Waste Management WM and Blockbuster BBI to prominence. Jackson has about three decades of industry sales experience, including Read more

Profile

AutoNation is the largest automotive dealer in the United States, with revenue of about $14.1 billion and 207 dealerships in 15 states, primarily in Sunbelt metropolitan Read more

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