AutoNation downgraded as JP Morgan assesses auto dealer stocks

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A shakeup of ratings across the franchise dealer space from a team of analysts at JP Morgan included a move to the sidelines on AutoNation(NYSE:AN).

While the analysts upgraded both Group 1 Automotive (GPI) and Sonic Automotive (SAH) and retained an “Overweight” rating on Lithia Motors (LAD), the bank’s research was not overly optimistic on the space overall.

“The setup for franchise dealers into 3Q22 earnings is the most negative we have encountered since the pandemic, fueled further by [CarMax] (KMX) results,” the research read. “Firstly, on 3Q22, we expect results to come in-line with consensus on net with the highest upside at GPI, followed by [Penske Automotive Group] (PAG), and least at LAD. While this should be a positive outcome (vs recently lowered buy-side bar), focus will be on the forward trajectory of units and GPUs in a deteriorating macro.”

The bank’s analysts reduced their rating on AutoNation (AN) to “Neutral” based on its comparatively worse risk/reward dynamics. Penske Automotive Group (PAG) and Asbury Automotive Group (ABG) were also retained at “Neutral” ratings.

Read more on auto dealer reactions to bearish results from CarMax.