Well-Timed Share Repurchases Drive AutoNation's Fourth-Quarter EPS Growth

Narrow-moat AutoNation 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 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.