It's a good day for auto dealer stocks. CarMax (CMX) got engines revving on Wall Street when it posted blowout quarterly results. And Goldman Sachs upgraded AutoNation (AN) from Neutral to Buy and set a six-month price target of $65, citing the company's growth prospects, margins and balance sheet.
The AutoNation upgrade was actually part of a broader industry call by analysts Patrick Archambault and David Tamberrino. In a 32-page note published today, the pair raised estimates for auto dealers, citing increased SAAR projections for 2014 through 2016 and growth opportunity's from M&A. Archambault and Tamberrino write:
The combination of these factors drives up our 2015/2016 EPS estimates to 2.4% and 6.1% above the Street which we believe is understating the sector's growth potential. M&A is the key growth opportunity. About 2 points of our 3% profit revision comes from M&A. With $2.4bn of dry powder, a still very fragmented dealer group, and reasonable valuations on the private side we think the risk is to the upside for acquisitions. M&A has added 2.4% to dealer revenue growth annually over the past 5 years which we assume continues.
AutoNation rose 2.7% to $58.04, while CarMax surged 15.6% to $52.32
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