JPMorgan Chase & Co. downgraded AutoNation’s stock to “underweight” from “neutral” following a decrease in vehicle sales in 2022.
The downgrade echoes the industry’s mixed reactions over AutoNation’s quarterly and full year report. Although the dealer group’s performance was impressive on many fronts, its new vehicle sales volume dropped by 12% while its net income fell 26% during an otherwise successful year for the industry. The retailer also seems to have lost its claim to be the biggest dealership in the U.S., after Lithia Motors continued its buying spree to add 32 new locations in 2022.
Explaining the downgrade to investors, JPMorgan analysts noted that although the company had navigated the COVID pandemic successfully, its financial outlook, from an investor perspective, was less than favorable. “We believe recent capital deployment will have little accretion in the near-term,” they noted, adding that AutoNation’s valuation to earnings ratio made it “less attractive at current levels.”
This is not to say that the dealer group does not have a bright future ahead, even in the face of further stock downgrades. AutoNation still remains one of the largest and most successful retailers in the U.S., and although its rate of dealership acquisitions slowed substantially in 2022 as it focused on stock buybacks, the company is planning to open 20 new stores in 2023. The brand has also acquired promising tech platforms such as RepairSmith and TrueCar, which could open the door for expanding digital services and sales. While this is good news from a business perspective, for investors there is simply little guarantee that these positives will bring short term returns.
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