On Thursday, Stephens initiated coverage on AutoNation Inc. (NYSE: NYSE:AN), a leading automotive retailer, assigning an Overweight rating and setting a price target of $210. The firm's decision is based on the company's long-term average enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple of 8.5x applied to their 2025 EBITDA estimate.
The coverage initiation reflects a positive outlook on AutoNation's business model, which is considered a fundamental and relatively stable investment opportunity within the Public 6 dealership groups. The analysis by Stephens points to a mere 5% of AutoNation's revenue being from acquisitions since 2019, indicating organic growth and stability.
AutoNation's geographic focus is also highlighted, with 52% of its stores strategically located in California, Texas, and Florida, emphasizing major metropolitan areas with high population densities. This positioning is likely to provide the company with a robust customer base. Despite exploring new business avenues through its used-only (AutoNation USA) and captive finance company strategies, these ventures are currently not significant to the overall operations.
The report also notes AutoNation's aggressive share repurchase strategy, with 61% of its shares bought back since 2019, including approximately 10% in the last twelve months alone. This buyback activity is a sign of the company's confidence in its value and future performance. Furthermore, Stephens projects that AutoNation will continue to reduce its share count by approximately 7% annually through 2026.
It is important to note that AutoNation does not pay a dividend, which may be a factor for investors seeking income through dividends to consider. However, the share repurchases could be seen as a method of returning value to shareholders. The $210 price target set by Stephens suggests a potential upside from the current trading levels, although the current price was not specified in the context provided.
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