On Wednesday, Morgan Stanley upgraded AutoNation Inc. (NYSE:AN) stock from Equalweight to Overweight and increased the price target to $200 from the previous $145. The firm's optimism is attributed to CEO Mike Manley's leadership and his ability to steer the company amidst economic uncertainties.
The firm forecasts that gross profit per unit (GPUs) will return to normal following the pandemic and will stabilize at a higher baseline compared to 2019. Morgan Stanley projects that AutoNation's EBITDA will be structurally higher at the end of the year than it was in 2019.
AutoNation's stock valuation is currently in line with the average of other franchise dealers. The firm notes this as a positive factor, indicating a balanced market assessment of the company's shares.
The upgrade also reflects the favorable position of AutoNation due to its significant sales exposure to Japanese Original Equipment Manufacturers (OEMs), particularly Toyota (NYSE:TM), which accounts for nearly one-fifth of AutoNation's sales. This is seen as advantageous for the company as it aligns with the recovery of supply chains and the growing demand for hybrid vehicles.
Lastly, the firm suggests that the bearish outlook on direct-to-consumer (DTC) electric vehicle (EV) disruption is less imminent than previously thought. This is due to a slowdown in EV sales, which may delay the expected impact on traditional auto dealerships like AutoNation.
In other recent news, AutoNation reported its second quarter of 2024 earnings, maintaining stable new vehicle margins despite a CDK outage that impacted earnings by approximately $1.55 per share. The automotive retailer saw a 6% growth in import brand sales and kept total revenue steady at $6.48 million, although gross profit dipped by 3%. Adjusted operating income was reported at $319 million, with adjusted net income at $163 million.
In addition, AutoNation's financial services demonstrated strength with increased loan originations and a portfolio balance over $700 million. Despite a decrease in total used vehicle sales, demand for lower-priced vehicles remained strong. The company repurchased $350 million in shares during the quarter, reaffirming its commitment to capital deployment.
Stephens, a financial services firm, recently initiated coverage on AutoNation, assigning an Overweight rating and setting a price target of $210. The firm's positive outlook is based on AutoNation's business model, geographic focus, and aggressive share repurchase strategy. Notably, AutoNation has bought back 61% of its shares since 2019, indicating confidence in its value and future performance. These are the latest developments for AutoNation.
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