Analyst Note| David Whiston, CFA, CPA, CFE |
AutoNation again reported record quarterly results, with adjusted diluted EPS from continuing operations of $2.79 beating the Refinitiv consensus of $1.88. We are raising our fair value estimate to $85 from $78 as a result of time value of money and higher used-vehicle revenue due to accelerating the expansion of AutoNation USA stand-alone used-vehicle stores. The original store opening timeline was for over 100 USA stores by 2030 and 55 by the end of 2025 but is now over 130 by the end of 2026. This aggressive acceleration reflects management’s increased confidence in its custom-made data tools invested in over the past roughly five years to facilitate ample procurement of used vehicles primarily from consumers instead of from more expensive auctions. We think this timeline can happen because AutoNation has the deep financial pockets and cash-flow-generating ability to fund this growth, plus the used-vehicle sector is highly fragmented, with the largest players having single-digit share of the U.S. market. The company also made a large acquisition announcement of 11 stores and a collision center from the Peacock Automotive Group in the southeastern U.S., representing $380 million of annual revenue.