AN Stock Downgraded By JPMorgan — What’s Behind The Cautious Call On AutoNation

JPMorgan downgraded AutoNation to ‘Neutral’ from ‘Overweight’ with an unchanged price target of $185, according to The Fly.

• The firm remains encouraged by AutoNation’s lifecycle economics strategy and sees its stake in and relationship with Waymo as a potential competitive advantage in autonomous vehicles, The Fly reported.
• JPMorgan sees potential for upward estimate revisions from improvements in parts and service, financing and commission structures, and AutoNation Finance profitability, though used-car volumes and cost discipline have lagged peers, according to Investing.com. 
• 10 of 13 analysts covering the stock rate it a ‘Buy’ or ‘Strong Buy,’ while three rate it a ‘Hold,’ according to Koyfin. 

AutoNation (AN) shares fell on Wednesday after JPMorgan downgraded the stock to ‘Neutral’ from ‘Overweight,’ citing a “sizeable disconnect” between its forward estimates and consensus.

JPMorgan analyst Rajat Gupta kept the price target unchanged at $185 following the downgrade, The Fly reported. 

AN shares traded 0.8% lower in premarket trading at the time of writing. 

Ten out of 13 analysts covering the stock rate it ‘Buy’ or ‘Strong Buy,’ while three rate it a ‘Hold,’ according to Koyfin. Their 12-month price target ranges from $175 to $250, with an average of $213.42. 

JPMorgan Flags Execution Challenges, Cites Potential Upside From Waymo

JPMorgan remains encouraged by AutoNation’s lifecycle economics approach to auto retail and believes the company’s equity stake in and relationship with Waymo “could furnish a competitive edge” as the auto industry adapts to autonomous vehicles, The Fly reported. 

However, the firm flagged the risk of valuation multiple compression across the sector, particularly relative to other companies in the broader auto ecosystem, according to The Fly.

Separately, Investing.com reported that JPMorgan said AutoNation’s execution on used-car volumes and cost discipline had lagged peers in recent quarters. 

The firm sees potential for upward revisions to forward estimates from improvements in parts and service, changes to financing originations and commission structures, and continued progress in AutoNation Finance’s profitability. However, these factors are unlikely to offset consumer affordability pressures affecting parts and service and finance and insurance, including AI-linked transparency pressures, Investing.com reported.

JPMorgan also expects AutoNation’s year-to-date share repurchases, equivalent to about 9% of its shares, and its balance-sheet flexibility to support the stock’s valuation, the report published by Investing.com added.

Barclays, Citi Lower Price Targets

Yesterday, Barclays lowered its price target on AutoNation to $220 from $230 while maintaining an ‘Overweight’ rating, according to The Fly. The firm cited the company’s third-quarter results and efforts to improve spending, while viewing the results as solid given the challenging macroeconomic backdrop, The Fly reported.

Citi also lowered its price target to $240 from $255 while maintaining a ‘Buy’ rating, according to The Fly.

How Retail Views AN

On Stocktwits, retail sentiment around the stock remained in the ‘bullish’ territory over the past 24 hours, amid ‘high’ message volumes.

AN shares have dropped over 15% year-to-date.

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