Between 2015-19 AN was valued at 7.7x trailing income on an EV/EBITDA basis, 11.5x on a P/E basis, and 12.6x using EV/FCF.  Valuation multiples for the Dealer began to normalize in 2024 as performance reflected a slowdown in the rate of decline of variable gross performance. When the tariff crises is resolved, we believe the group multiple will expand. Until then, our estimates are about 5% below street estimates. Our $208 price target uses the midpoint of our multiple range and averages all three metrics.

The auto industry is capital-intensive, labor-intensive, cyclical, low-growth, competitive, and highly regulated.  While industry characteristics limit competitive threats, each presents an added financial risk. Industry demand in the major global markets depends on current economic conditions, which can change unexpectedly and could have a material impact on our earnings assumptions as well as our target price. The high relative fixed cost structure of the industry can lead to material changes in pricing for new and used vehicles as well as components. A material decline in the price structure of the industry could also have a material impact on our financial assumptions. During periods of severe industry recession in the past, many companies in the auto sector were forced to seek bankruptcy protection. If the impact on AutoNation from any of these factors above proves to be less than we anticipate, the stock could materially outperform our target. Conversely, if the impact on the company from any of these factors proves to be greater than we anticipate, the stock could underperform our target price.