Key Takeaways
- AutoNation shares jumped 6% after its board approved another $1 billion for buybacks along with its third-quarter results.
- Adjusted net income fell 11%, but the diluted share count dropped 13%, so adjusted EPS still rose 2%.
- Same-store used vehicle sales fell 6% while Carvana’s retail units grew 39%, and Lithia Motors is relying on buybacks too.
- The buyback makes sense as long as service and financing profits keep growing while vehicle sales slip.
AutoNation (AN) shares jumped 6% today after the dealer reported third-quarter results before the open, and its board approved another $1 billion for buybacks.
It’s a familiar playbook. Lithia Motors (LAD) has bought back 8.7% of its shares this year. Online rival Carvana (CVNA) says its 39% jump in retail units came from taking market share.
Buybacks carried the quarter
The new authorization leaves AutoNation $1.4 billion to spend, close to a quarter of its market value. CEO Mike Manley: “The current environment strongly favors allocating capital toward share repurchases.”
He said AutoNation put nearly 85% of its adjusted free cash flow into buybacks this year. The diluted share count is down 13% from a year ago:
The business itself earned less. Net income fell 25% from a year earlier:
(Last year’s quarter had $40 million of insurance recoveries from the CDK outage. Adjusted net income fell 11%.) With far fewer shares to spread it over, adjusted EPS still rose 2% to $5.11.
TIKR tracks 13 analysts on AutoNation. How many say “Buy”?
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Service and financing pick up the slack
Same-store new vehicle unit sales fell 5%, and used fell 6%. But After-Sales gross profit hit a record $616.6 million, now just over half of AutoNation’s gross profit. AN Finance’s loan book grew more than 40%, and its income jumped to $15.4 million from $1.5 million.
Carvana said Wednesday that its retail units rose 39% in the third quarter, while the industry was roughly flat. AutoNation made 3% more gross profit per used car on a same-store basis. Is it choosing price over volume, or losing buyers to Carvana?
Lithia’s numbers show AutoNation isn’t the only one doing this. Its adjusted net income fell 5% in the third quarter, but adjusted EPS rose 9%. CEO Bryan DeBoer credited “a meaningfully lower share count magnifying every dollar we earn.”
Manley’s bet holds up
A buyback only pays off if the stock is cheap. AutoNation’s forward P/E shows where it trades against its own five-year history:
Non-vehicle debt rose to $4.3 billion from $3.8 billion a year ago, though leverage of 2.7x sits well inside its 3.75x covenant.
My take: Manley is right to keep buying. The service bays keep earning when car sales slow, and AN Finance is becoming a real profit line.
Of course, if used-car buyers keep drifting to Carvana, buybacks can only cover for so long. The next test is fourth-quarter results early next year.
So what is AutoNation stock actually worth?
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Disclaimer:
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