Well-Timed Share Repurchases Drive AutoNation’s Q4 EPS Growth
The buybacks more than offset a 25% decline in pretax income.
Narrow-moat AutoNation AN used share repurchases to boost its fourth-quarter adjusted EPS by 10.6% year over year to $6.37, which beat the $5.83 Refinitiv consensus. Same-store revenue rose 1.2% on high-single-digit growth from new vehicles and service. We are not changing our fair value estimate of $149 but will revisit all modeling assumptions after the 10-K is filed. We calculate that excluding buybacks, EPS would have fallen 16% to $4.84. The buybacks more than offset a 25% decline in pretax income brought on by lower gross profit dollars in all segments except service, which grew 12.3%. These trends make sense, given that the sector is seeing declines in new-vehicle profitability (AutoNation’s new-vehicle gross profit per unit fell by 12.7% to $5,633) as inventory slowly improves from the chip shortage and that shortage drastically hurting used-vehicle affordability for both retailers and consumers. Used-vehicle GPU fell by 10.5% and used unit volume declined 9.2% versus a 4.3% rise in new-vehicle volume. Pricing rose for both new (up 3.4%) and used (up 2%) to $52,394 and $29,780, respectively.
EPS growth was entirely from buybacks, but we are not critical of the move, as management timed its purchases well and bought comfortably below our fair value estimate. AutoNation bought back 4.6 million shares in the quarter, 29.5% of the full-year buyback volume, at an average price by our calculation of $108.09 per share, far below where the stock traded on Feb. 17. Full-year repurchases totaled $1.7 billion at $109.63 per share on average, which equated to buying back 25% of the company in 2022. AutoNation has long been a prolific buyer of its stock, and we expect that to continue in 2023 and beyond. Actual shares outstanding at year-end were 47.6 million (50.1 million diluted). Management sees “strong potential” for 2023 U.S. industry sales exceeding 15 million, which is reasonable but a bit on the optimistic side versus our expectation and many others we’ve seen.
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