Analyst Note| David Whiston, CFA, CPA, CFE |
AutoNation’s third-quarter earnings were the sixth straight record quarter for the company, as low inventory from the chip shortage continues to yield excellent pricing power for dealers. Diluted EPS from continuing operations of $5.12 beat the Refinitiv consensus of $4.20 and was more than double adjusted EPS a year ago. The company also announced its second acquisition this year, Priority 1 Automotive Group, which is expected to close before year-end and bring about $420 million of annualized revenue. Priority 1 is a Maryland-based firm with mostly premium brand franchises such as Acura, BMW, and Audi primarily near Baltimore. AutoNation also said it bought back nearly 11% of outstanding shares in the quarter and has repurchased 27% of shares in the past 12 months. It also announced a new $1 billion buyback program, bringing total authorization to about $1.3 billion. We are raising our fair value estimate to $109 from $98 on time value of money, a lower share count, and higher 2021 and 2022 earnings than previously modeled due to how 2021 is tracking and the Priority 1 deal.