On Friday, September 21st, analysts at Bank of America upgraded shares of AutoNation, Inc. (AN). The firm raised its rating on the stock from Neutral to Buy and did not set a price target. As a result of the upgrade, shares of AN reacted quite nicely, trading up 1.82% since the opening of trading on Friday. That said I wanted to examine the company a bit further and take a look at how it compares (and outpaces) to some of its industry-based competitors in terms of Profit Margin and Operating Margin. The three companies within the Auto Dealership Sector I chose to compare with AutoNation, Inc. are: Group 1 Automotive, Inc. (GPI), Penske Automotive Group, Inc. (PAG), and Sonic Automotive, Inc. (SAH).
Overview: AutoNation, Inc.
AutoNation, Inc., through its subsidiaries, operates as an automotive retailer in the United States. The company offers various automotive products and services, including new vehicles; used vehicles; parts, and automotive repair and maintenance services; and automotive finance and insurance products, which arranges financing for vehicle purchases through third-party finance sources. It also provides a range of vehicle maintenance, repair, paint, and collision repair services, such as warranty and customer-pay service work. In addition, the company offers various vehicle protection products, including extended service contracts, maintenance programs, guaranteed auto protection, tire and wheel protection, and theft protection products. As of December 31, 2011, it owned and operated 258 new vehicle franchises from 215 stores located in metropolitan markets, primarily in the Sunbelt region. AutoNation, Inc. was founded in 1991 and is headquartered in Fort Lauderdale, Florida.
Profit Margin Comparison: Auto Dealerships
As a whole, and in my opinion, the Auto Dealership sector has some of the lowest average profit margins I've seen especially when to compared to some of the other industries I've written articles on. That said the average profit margin of the four companies featured is a pretty dismal 1.505%. The good thing about those numbers is the fact AutoNation, Inc. has demonstrated a sector-leading 1.98% profit margin over the last 12 months, whereas Group 1 Automotive only managed to demonstrate a profit margin of 1.39%, Penske Automotive Group only managed a profit margin of 1.58%, and Sonic Automotive, Inc. only demonstrated a profit margin of 1.07%. From a growth standpoint, and although pretty low, I'd consider a position in AutoNation, Inc. because of the fact the company is able to outpace three of the biggest competitors within the sector in terms of profit margin.
Operating Margin Comparison: Auto Dealerships
As was the case with Profit Margins, and in my opinion, the Auto Dealership sector also has some of the lowest average operating margins I've seen since I began writing comparative articles a while back. That said the average operating margin of the four companies featured is a pretty low 3.188%. The good thing about those numbers is the fact AutoNation, Inc. has demonstrated a sector-leading 4.08% operating margin over the last 12 months, whereas Group 1 Automotive only managed to demonstrate an operating margin of 3.28%, Penske Automotive Group only managed an operating margin of 2.71%, and Sonic Automotive, Inc. only demonstrated an operating margin of 2.68%. From a growth standpoint, and although still pretty low, I'd consider a position in AutoNation, Inc. because of the fact the company is able to outpace three of the biggest competitors within the sector in terms of operating margin.
AutoNation, Inc., in my opinion, is one of the better companies within the Auto Dealership sector and if the company continues to outpace the competition, in terms of both Profit Margin and Operating Margin we could easily see shares begin to trade at or near the $48/share level.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.