The largest publicly traded car dealership group, AutoNation (AN), reported strong sales and record earnings per share for the 2012 first quarter. With numbers from over 210 dealerships covering all of the major car manufacturers, are the good results from AutoNation a preview of strong earnings results from Ford (F) and General Motors (GM) who will be reporting in the next week.
First, a discussion of the results from AutoNation which pertain to potential results from Ford and GM. AutoNation divides its new car sales into three divisions: Domestic brands, Import brands and Premium luxury. For the quarter, the company reported a 10% year-over-year increase in new car sales. The domestic car sales - including Ford and GM - led the way with a 16% increase in sales. Another positive for the auto manufacturers was reported during the AutoNation earnings conference call. CEO Mike Jackson noted that the high gas prices of the last several months were not having a negative effect on new car sales. The availability of new, fuel-efficient car models seems to be drawing buyers into the dealerships.
AutoNation reported earnings of 56 cents per share, up 22% on a 10 percent increase in revenue. All divisions of the company: new car sales, used car sales, parts & service and finance reported higher operating earnings. The 56 cents earnings per share are above the consensus estimate of 53 cents.
AutoNation is riding a multi-year wave of increasing new car sales. From the year 2000 to 2007, annual new car sales in the U.S. ranged from 16 to 17 million. The Great Recession hit new car sales especially hard - witness the government bailouts of GM and Chrysler - and sales dropped all the way to 10.4 million in 2009. Sales increased by 1.2 million to 11.6 in 2010, then plus 2 million to 12.6 in 2011. After the first quarter results, the AutoNation management is forecasting U.S. auto sales of 14.5 million in 2012. The company reported a net income increase of 24% in 2011 and 20% or better earnings growth in 2012 seems to be very likely. For auto sales to return to typical pre-recession levels, sales will be growing at the current pace well into 2014.
A 20% increase in earnings for full year 2012, would put the year-end earnings number at $2.32, about a nickel higher than the current earnings estimate. A 17.5 multiple - the current P/E ratio - turns AutoNation into a $41 stock at year-end and a 20 multiple at the end of the year produces a $46 stock. An investment now in AutoNation may very well outperform either Ford or General Motors when the end of 2012 rolls around.
Consider this point: Ford Will Not Be A Market Beating Investment in 2012