Tags: AutoNation | buybacks | recovery | AN

AutoNation Busy with Buybacks During Recovery

By    |   Friday, 27 April 2012 01:57 PM

AutoNation (AN), the non-affiliated car dealership chain launched by Blockbuster and Waste Management founder H. Wayne Huizenga, has been busy during the slow recovery, taking advantage of renewed interest in car-buying to funnel cash back into its shareholders’ pockets via stock buybacks.

AutoNation sells new and used cars and trucks via 260 dealerships in 215 stores located in major U.S. markets, mostly in the South. It makes money on vehicle sales but also parts and service, financing and vehicle warranty products, insurance, and collision repair shops it runs.

AutoNation sells new cars and trucks offered by U.S. manufacturers GM, Ford and Chrysler and imports from Toyota, Honda and Nissan. It also sells a premium line, featuring cars from Mercedes, BMW, and Lexus. These vehicles lines represent 90 percent of new vehicles sold.

The company is 51-percent held by ESL Investments, the hedge fund run by Sears Holdings (SHLD) Chairman Eddie Lampert. Another 13 percent is owned by Microsoft’s Bill Gates via his foundation and investment trust.

“A key component of our long-term strategy is to maximize the return on investment generated by the use of cash flow that our business generates, while maintaining a strong balance sheet,” AutoNation management told investors in a recent filing.

“We expect to use our cash flow to make capital investments in our business, to complete dealership acquisitions, and to repurchase our common stock and/or debt.”

In 2011, the company bought back 17.1 million shares of its own stock at an average price of $34.14. In January, the board authorized an additional $250 million to buy shares, and by March 31 the company had bought 11.7 million shares at an average price of $34.72.

The company has a market cap of $4.2 billion in a sector, specialty retail, where the average company size is $6.28 billion. Its trailing 12-month P/E ratio is 16.94 and its five-year projected price-to-earnings-growth (PEG) ratio is 0.84, compared to 1.32 for the sector.

Its projected earnings per share growth for the coming year is 12.55 percent, lower than the sector average at 16.64 percent.

Mixed outlook

Analysts are mixed on AutoNation’s prospects going forward. Ned Davis Research has a buy on the stock, but Morgan Stanley has AN at underperform.

Standard & Poor’s recently renewed its neutral rating on AN. “Despite higher than expected new vehicle sales, operating and pretax income were below our forecast,” its analysts wrote following recently released results, while raising the its target price $1 to $37 a share.

AutoNation next reports on July 25.

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