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What Does Hefty Insider Selling Indicate For AutoNation?

Story Highlights

A number of key executives from AutoNation’s top management engaged in informative Sells during the last quarter, with numerous Form 4’s filed with the SEC. Strikingly, the Sell-offs come within a month of the company reporting stellar Q1 earnings, topping both earnings and revenue estimates.

Treading the footsteps of major hedge funds in the recent tech-sell-offs are the top insiders of big auto dealer companies like AutoNation (AN). Based in Florida, AutoNation is a leading automotive retailer, providing new and pre-owned vehicles and associated services in the United States.

Informative Sell-Offs

Insiders at AutoNation are Very Negative about the stock’s near-term prospects and have sold a whopping $94.9 million worth of AutoNation shares in the past three months.

A number of key executives from AutoNation’s top management engaged in informative Sells during the last quarter, with numerous Form 4s filed with the SEC.

Topping the Sell list was the major shareholder (greater than 10% ownership) and former Director of AutoNation, Edward Lampert.

Yesterday, he made an informative Sell of 262,786 shares of the stock worth $29.3 million at $111.49 price levels.

Strikingly, this is not the first time he pushed the Sell button. Edward has engaged in a number of small and big Sell transactions over the span of the last six months. In the month of May itself, he sold over 900,000 shares.

Even after the series of Sell transactions, Edward continues to be a major shareholder, currently holding 8.26 million shares (14.2% ownership) worth $910.71 million.

Furthermore, earlier in May, EVP (General Counsel and Corporate Secretary), Edmunds C. Cole; EVP and Chief Cust Exp Officer, Cannon Marc G; and SVP and CAO, Christopher Cade, also made informative Sell of AN stock worth $1.7 million, $2.4 million, and $989,344, respectively.

On the contrary, however, there was a single minimal buy three days ago when COO (Precision Parts and EVP Mobility), Camplone Gianluca made an informative Buy of 2,342 AN shares worth $258,790.

Upbeat Q1 Earnings

Much to investors’ surprise, the Sell-offs come within a month of the company reporting stellar Q1 earnings, topping both earnings and revenue estimates.

On April 21, the company reported adjusted Q1 earnings of $5.78 per share, which more than doubled year-over-year and massively beat analysts’ expectations of $5.25 per share. 

Notably, it was much higher than the reported earnings of $2.85 per share for the prior-year period.

On top of that, revenues jumped 14.4% year-over-year to $6.75 billion and exceeded consensus estimates of $6.51 million.

Wall Street’s Take

On May 20, Morgan Stanley analyst Adam Jonas decreased the price target on AutoNation to $107 from $108, while maintaining a Hold rating on the shares.

Jonas maintains a cautious outlook on the auto dealers based on his “mean-reversion” thesis.

He highlights that the supernormal profits, which are 3x the pre-pandemic levels, are unsustainable given the rising interest rates and increased pressure on the consumer.

Turning to Wall Street, the analyst consensus is also optimistic about AutoNation, with a Strong Buy rating based on four Buys and one Hold. The average AutoNation price target of $142 indicates an upside potential of 23.65%.

Conclusion

Shares of AutoNation jumped 13.13% over the past year, beating the underlying benchmark indexes.

Overall, the auto industry has materially benefited from supply constraints, driving all-time-high pricing and profits on new and used vehicles.

However, the supernormal profits may not be sustainable, which could be the underlying reason for the sell-offs despite record earnings.

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