Citi sets AutoNation stock rating at Sell, targets $208

On Wednesday, Citi initiated coverage on AutoNation Inc. (NYSE: NYSE:AN), assigning a Sell rating to the automotive retailer’s shares, along with a price target of $208. According to InvestingPro data, AutoNation currently trades at $174.71 with a P/E ratio of 9.89x, and analysis suggests the stock is currently overvalued. The coverage, led by Citi analysts, suggests that AutoNation’s business model may be less affected by potential higher tariffs compared to the broader auto sector.

AutoNation’s 2024 performance showed that gross profit from selling new vehicles constituted 16% of the company’s total, which is the lowest in its comparison group. Conversely, the gross profit from Parts & Services was the highest among its peers, representing 46%. Citi analysts believe that an increase in tariffs could potentially drive up used vehicle prices, which make up 9% of the company’s gross, and boost demand for services. This could mitigate the negative impact of tariffs on new vehicle demand.

The company has also seen a significant reduction in share count, which has dropped by 52% since early 2021. From 2010 to 2020, the average variable gross selling new and used retail units was $3,400 per unit. However, a combination of tight supply and growing demand has led to increased transaction prices, with the variable gross reaching a peak of $6,300 per unit in 2022 and $4,900 per unit in 2024.

Citi’s analysis highlighted AutoNation’s ability to generate outsized earnings, which has facilitated record cash returns to shareholders. The firm underscored AutoNation’s financial performance as a key driver of its stock performance, noting that the Dealer Group has outperformed the S&P 500 for three consecutive years. Looking forward, Citi anticipates that AutoNation will continue to outperform in 2025-26, driven by high variable gross margins, cost containment, consolidation, and cash returns, which could lead to an expansion of the company’s stock multiples.

Despite the positive outlook on the company’s performance and industry position, Citi has set a conservative price target, suggesting that there may be limited upside potential for the stock at the current levels. The $208 price target set by Citi reflects their analysis and expectations for AutoNation’s stock performance in the near future. For deeper insights into AutoNation’s valuation and future prospects, InvestingPro subscribers can access comprehensive research reports, including detailed financial health scores and over 10 additional exclusive ProTips about the company’s performance and outlook.

In other recent news, AutoNation reported fourth-quarter 2024 results that exceeded expectations, with adjusted earnings per share reaching $4.97, surpassing the analyst consensus of $4.24. The company also reported revenue of $7.21 billion, beating estimates of $6.67 billion and marking an 8% year-over-year increase on a same-store basis. In a related development, Jefferies raised its price target for AutoNation to $190 from $165, citing the company’s strong new vehicle sales and improved average selling prices. Similarly, Stephens increased its price target to $200 from $195, following AutoNation’s better-than-expected earnings performance.

S&P Global Ratings assigned a ’BBB-’ rating to AutoNation’s proposed senior unsecured notes due in 2035, noting that the issuance is expected to be leverage neutral. The company plans to use the proceeds to pay down outstanding commercial paper and for general corporate purposes. AutoNation also announced the appointment of Jeremy Tucker as its new Chief Marketing Officer, a move that aligns with its strategic efforts to enhance consumer reach. Tucker brings a wealth of experience in marketing leadership from notable companies such as Spin Master and Planet Fitness (NYSE:PLNT).

AutoNation’s recent performance highlights robust growth in both new and used vehicle sales, as well as strong results in its After-Sales and Customer Financial Services segments. The company continued its share repurchase program, buying back 0.6 million shares for $104 million in the fourth quarter. These developments indicate AutoNation’s strong operational capabilities and strategic positioning in the automotive retail market.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.