AutoNation's Q2 Is Another Record, and It Will Acquire a Captive Finance Arm

We are not changing our AutoNation fair value estimate after it reported its best-ever quarterly EPS. Diluted EPS of $6.48 rose by 34% year over year to beat the Refinitiv consensus of $6.22. Although results remain strong, we think continued fears of a possible recession and of peak earnings for the cycle happening now will remain an overhang on dealer stocks for the next few quarters. Same-store revenue fell by 5.4% mostly due to a 17.4% decline in new vehicle revenue. The chip shortage continues to hurt new vehicle inventory for all automakers and same store new unit volume fell by 27.5%. This supply dearth helps pricing power though and same store new vehicle revenue per unit rose by 13.9% to $50,627 and gross profit per new unit grew 47% to $6,109 which enabled aggregate same store new gross profit dollars to rise by 6.6%. Same store used vehicle gross profit declined by 22.1% despite an 18.4% rise in price per unit. This trend exists throughout our coverage due to the chip shortage significantly raising used inventory acquisition costs, which will likely continue into next year, in our view.