Option Trade
AutoNation, Inc. (NYSE:AN) Put
Tuesday, August 01, 2017

** OPTION TRADE: Buy the AN AUG 18 2017 40.000 PUT at approximately $1.40. Place a pre-determined sell at $2.80.

Note: No protective stop losses added -- but if you wish to do so make it $0.55.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

by Ian Harvey   

AutoNation, Inc. (NYSE:AN), an automotive retailer in the United States, is expected to report second-quarter 2017 results, before the market opens on August 2.

Wall Street analysts expect $0.98 earnings per share, down $0.10 or 9.26 % from last year’s $1.08 for the same quarter earnings. This translates into $99.20M profit for AN, giving the stock a 10.81 P/E. This is assuming the current $0.98 EPS is accurate. AutoNation, Inc.’s Wall Street analysts see 1.03 % EPS growth, taking into account the $0.97 EPS reported in the previous quarter.

In the last quarter, the company delivered a positive earnings surprise of 6.59%, reporting earnings of 97 cents per share, higher than 7 cents per share from the year-ago quarter. Earnings also topped the Consensus Estimate of 91 cents.

For the same period, revenues inched up 0.4% year over year to $5.14 billion, but missed the Consensus Estimate of $5.31 billion.

The risk of peak auto is lingering over the automakers right now. Some pent-up demand helped spike auto sales to multi-year highs but now with rates turning the corner and a glut of cars coming back on leases there is pressure on sales. As a result, analysts have becoming increasingly bearish on the industry as a whole.

The bearish attitude has dropped the Consensus Estimate for the current year from $4.01 to $3.90 while next year's number has gone down from $4.46 to $4.17.

AutoNation’s financial position has been weakening, with the cash balance declining. Used vehicles margin is also under pressure due to previously held inventory.

Auto nation will see even more revenue releases that are below expectations. AN will move lower from this; much lower.

AutoNation, Inc. has declined 14.65% since August 1, 2016 and is down-trending. It has underperformed by 31.35% the S&P 500.

AutoNation’s 50 day moving average is $41.53 and its 200 day moving average is $43.76. The company has a market cap of $4.32 billion, a P/E ratio of 10.09 and a beta of 1.25. AutoNation has a 12 month low of $38.20 and a 12 month high of $54.15.

Influencing Factors to Consider

The financial position of AutoNation is deteriorating. With brand expansion plans, its capital expenditure is expected to increase by $500 million, over the next few years. In the last reported quarter, the same expenditure rose to $86.8 million compared with $50.7 million in the year-ago period.

AutoNation is also facing pressure in its used vehicles segment. For the last reported quarter, this segment's revenue was almost flat year over year at $1.24 million. The used vehicles margin is in stress due to inventory that was previously on sales hold.

The company had roughly 7% of its used vehicle units on hold at the end of 2016, due to the Takata airbag recall. The burden is expected to continue with an improvement projected in the second quarter of 2017.

AutoNation has also underperformed the categorized Retail/Wholesale Auto/Truck industry in the last three months. Its shares have fallen 4.8% during the period, whereas the industry declined 3.4%.

Also, the consumer is slowing. Retail sales continue to show weakness. Consumer confidence is starting to wane somewhat. Morgan Stanley analysts believe the prices of used cars may drop 50%.

On Monday, August 7, AutoNation Inc., will be removed from the S&P 500 effective prior to the open on Tuesday, August 8, and replaced by Brighthouse Financial Inc. (NASD: BHF).

Investor’s sentiment decreased to 0.8 in Q4 2016, down 0.09, from 0.89 in 2016Q3. It is negative, as 35 investors sold AutoNation, Inc. shares while 108 reduced holdings. 44 funds opened positions while 70 raised stakes. 62.29 million shares or 5.17% less from 65.69 million shares in 2016Q3 were reported.

Analysts and Hedge Funds Opinions

ValuEngine downgraded shares of AutoNation from a “buy” rating to a “hold” rating in a research note on Friday, June 2nd.

Several other analysts have also recently commented on the company…..

  • Morgan Stanley lowered their target price on shares of AutoNation from $57.00 to $53.00 and set an “overweight” rating for the company in a research note on Friday, June 9th.
  • Deutsche Bank AG reaffirmed a “hold” rating and issued a $46.00 target price (down previously from $50.00) on shares of AutoNation in a research note on Thursday, June 22nd.
  • BidaskClub raised shares of AutoNation from a “strong sell” rating to a “sell” rating in a research note on Thursday, June 29th.

Also, several insider trades have occurred…..

Since February 6, 2017, there have been 8 sales for $19.68 million.

  • Ferrando Jonathan P had sold 49,347 shares worth $2.41 million on Monday, February 6.
  • Cade Christopher also sold $25,935 worth of AutoNation, Inc. on Wednesday, March 1.
  •  $80,220 worth of AutoNation, Inc. shares were sold by Grusky Robert R.

Harvey’s Options Volatility Indicator


Given the fundamentals of the economy, the consumer, financing, it is a belief that AN will miss either their earnings or their revenue, or both. And, the price of the stock will drop sharply.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the AN AUG 18 2017 40.000 PUT at approximately $1.40. Place a pre-determined sell at $2.80.

Note: No protective stop losses added -- but if you wish to do so make it $0.55.


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