Bill Gates Helps Out Autonation

It is official! Bill Gates has to be the most charitable man alive. Now, he is providing a chunk of his assets to help out ailing Autonation (AN). Sure he takes a nice piece of the company and if you look at the history of this once darling/roll-up king, you will realize that this may be actually approaching a bottom.

Whether it is a brilliant move or a plan for a tax write-off is still not known, but it does appear that Autonation’s CEO Michael Jackson seems to have a plan for cost cutting and working within this difficult environment. Do we follow Gates into this without any thought? Do we then follow Lampert as he has been continuing to add to his holdings (40% now)? Maybe not.

How about a contarian play? Maybe… Whatever you think about the fate of the auto industry, this happens to be a well run company that is caught within a very bad situation. It is at a relative low and as oil prices seem to be turning and companies are waking up to the fact that they need to change their ways. This could give Autonation a boost. The biggest concern is still the consumer and his or her ability to buy or borrow to buy a new car.

Comments

[Jimanders]

This guy has no clue - when you invest - you invest. Buying stock has nothing to do with today - it has to do with tomorrow. It amazes me how people try to influence stock prices daily - when buying stock is a long term play. Auto retailers will continue to be important and people will purchase transportation. And those vehicles will need financing and repair. The car or truck my be powered differently - but it will be powered and people will buy them and people will travel from point A to point B. This company is making money - is low cost - has the right model. Today the consumer is waiting to see how technology changes the automobile - it won't eliminate the automobile that is for sure.

If you are an investor - this is a good company - if you are a speculator thinking you can make 30% in the next day - you should not be in stocks at all.

[AndrewHorowitz]

Jim:

What are you talking about? Dribble, pure dribble. If you need to slam someone, do it on the b-ball courts and leave the thinking to someone who can actually do it.

We can assume that you are long and have been riding this down for years??? Same thing, different day.

[Jimanders]

:) Actually not on point at all - first of all I have significant investments in AN at this point in a private fund - with a very low basis - maybe 11 ish. However that was not the point of my comments - You should respond with some analysis. There are a number of companies at this point - where the emotional market has pushed the pricing to levels well below the value of the companies future cash flows. A smart investor - not emotional speculator - evaluates the cash flows today and speculates on future cash flows. AN is clearly a well run company - with good cash flows - especially given the automobile market today. Even at today's cash flow using a DCF valuation and assuming the retail auto industry never grows beyond the run rate of today - AN is a good investment. I manage a private fund - and have taken long positions on companies like AN - enhanced with LEAP options looking for 1/2010. Those who are investors vs. market speculators and market emotion drivers - look at the value of the investment - and only look at the emotional market to provide buying opportunities.

The sad part is AN will potentially go private at a price much lower then the value of the investment in assets - playing the emotional market enhanced by the media - to buy the company below the intrinsic value of the producing assets.

In the end - economics is eventually recongized in the market - but emotion will drive many from using sound investing judgement. I don't know you - but most of your original comments were on track - however it amazes me that financially oriented analyst bait their work with attention grabbing titles - suggesting something like bailout or saving a company going down for the final count.

Today - too many people watch the stock market - and too many people have their life savings and pension in the market. 30 years ago the average worker was not interested in the market - today most workers and the general population are feel their financial security is tied to the market - and they panic when the media sensationalizes the facts - pushing the market and public to extremes. It would be nice if the media would take time to educate the general population on investing for the long term and understanding market cycles.

Jim - older and wiser

[watchdog]

Gates can throw money at the problem, just like the government can throw money at welfare. You can't fix AutoNation because it stinks from the top down. I've been in the business for 30 years turning around dealer operations and found that big auto groups are their own worst enemy. Total mismanagement, bean counters instead of real car people , and the refusal to pay for talent, coupled with nonsense cost cuttings that hurt the profitability of the store. They will never turn around and this is the beginning of the end to group ownerships like Carmax, Sonic etc. and I say good bye, it will be much better for the consumer.

[F Charlie]

Find an online calculator that will discount future earnings, plug in $1.20 for AN's earnings this year, discounted by 11% and assume zero growth, EVER again. The intrinsic value of this business is higher than todays prices even assuming it never grows again.

[Jimanders]

exactly - and Lambert and Gates and others will take this private at these prices - althought they will need to pay $16ish to get all the stock - and since they control the board - they won't need to pay $20 to $25 -
The issue is - the smaller investors should be allowed to stay in the game - and realize the $1.20 with growth starting in a couple of years - or $25 per share.

[F Charlie]

Jim,

Do you think Lampert wants to take AutoNation private, or perhaps fold it into Sears Holdings?

Also, I am surprised that Lampert, or ESL partners have not increased their ownership at these lower prices. Is he restricted from buying around earnings time?

[Jimanders]

They usually cannot buy 45 days before earnings and I until 3 days after earnings release. Hard to say - but private money would see a nice return on the investment - vs. the market pricing. At this point, they are managing well given the lowest level of new car sales in years - and management has been able to deliver a nice earnings trend. They have deployed cash flow capital to best use given the stock price - market consolidation and dealership elimination during this market downturn will only serve to better position AN. The emotional market pricing is providing the private capital investors the opportunity to buy cheap and realize better profits long term.

AN could be an interesting addition to Sears - but there are other options. The addition of the Gates group into the mix will also make options interesting. The market does not control the share votes on this one. Also with so little stock traded on the market - the market price can be dynamic -

This should be a $20 stock - and it really is a $25 stock if we assume the auto market will improve. America needs transportation - and the auto is a part of life. It may not be gas powered in the long term - but it will be an auto powered by something. The margins on these smaller vehicles will be much better as demand increases and as those who switch add comfort options to the base car.

So sit tight - buy shares at these low prices - should have bought more at $7 ish.

[Unionworker]

Watchdog: You know your stuff on Autonation and all of the mega car retailers.I worked for both Sonic and Autonation.They don't know how to make a business grow.What they do is grow from within with ridiculous cut backs that hurt the customer and the workers.The customers hate the unskilled workers they hire on the on the cheap and the workers hate the company because they are under payed.Total business suicide!

[Jimanders]

Amazing - Lampert keeps buying - Gates keeps buying - the stock on the market keeps going down - and what are the sellers thinking. They bought high and sold low - unless you are a mutual fund with a run on the fund - why are you selling at these prices? These guys are buying this company on the cheap while everyone sells their stock at these low prices? This is not the time to be selling??? It amazes me that the herd will follow the herd to create a market bubble and will pay too much for something - then follow the herd again and sell low. Following the herd is not how to invest.

[F Charlie]

Jim,

I am blown away by the latest 13D filing. Looks like Eddie picked up right where he left off, buying right up to the 45 day blackout period prior to earnings, and exactly 3 days following earnings he's buying again, only this time with the lower prices, he's taking down bigger blocks of shares. This is going to get very interesting. As of July 10th, the short interest was 21.6%. Insiders own over 55+% of the shares, and between the company buyback and Eddie's purchases, I don't see how this thing doesn't spike higher.

Is it possible the reason people are selling is because of fears the company will be taken over without a premium?? Other than margin calls or forced selling, thats the only thing I can think of that might motivate someone to sell at these prices. Otherwise this stock is going much, much higher.