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JPMorgan analysts downgraded AutoNation (NYSE:AN) to Underweight from Neutral, raising the firm’s price target on the stock to $130 per share on Tuesday.
In a note focused on US franchise auto dealerships, the analysts told investors that after continued strength in 2023 for the franchise auto dealership sector, they believe the industry will likely take a breather in the near term.
However, JPMorgan continues to prefer the franchise dealership sector compared to used car dealership peers in terms of valuation and the fundamental backdrop.
Focusing on AutoNation, the analysts explained that the company’s “execution through the pandemic has been robust, and management has used excess FCF to reduce float by ~48% since the start of the pandemic, and leverage is still well in check at 2.0x.”
“We believe recent capital deployment will have little accretion in the near-term, investments are expected to increase, buybacks are likely to take a step back, and move to more M&A, and related execution credibility will take time to establish,” wrote the analysts. “Shares are trading at a ~5% premium on EV/EBITDA making risk-reward less attractive at current levels.”
