AutoCanada price target cut at National Bank

Following the company’s fourth quarter results, National Bank Financial analyst Maxim Sytchev has cut his price target on AutoCanada (AutoCanada Stock Quote, Chart, News, Analysts, Financials TSX:ACQ).

On March 7, ACQ reported its fourth quarter and fiscal 2023 results. In the fourth quarter, the company posted Adjusted EBITDA of $46.4-million on revenue of $1.49-billion, a topline that was up 6.9 per cent over the same period a year prior.

“During the fourth quarter, AutoCanada experienced solid growth in new vehicle sales and a robust contribution from parts, service and collision repair [PS&CR]. These gains were tempered by a decrease in used vehicle sales, primarily in the U.S. market, as well as higher interest rates impacting floor plan, finance costs and consumer preferences for affordable vehicles and minimal financing,” CEO Paul Antony said. “Significant progress has been made on Project Elevate initiatives since its launch at the end of August, with key management changes announced in November, 2023, allowing us to begin executing against this five-year strategic plan in earnest. To date this has included completing a U.S. restructuring, initiating best practice playbooks across several functions, implementing training programs, beginning corporate infrastructure modernization projects and creating operating expense targets by brand, which are expected to be implemented in Canada this summer. This foundational work is critical to our core Project Elevate objectives which are to maximize gross profit, optimize our cost structure and modernize our corporate infrastructure. I am very proud of the hard work and dedication of our team, who are doing an excellent job navigating challenging market conditions. I would like to thank our OEM partners for their continued support.”

The analyst said this quarter was evidence that the road ahead may be a difficult one for AutoCanada.

“We maintain our ‘consumer under pressure’ view, making a positive investment thesis more challenging at the moment, even at what we deem as a reasonable valuation for ACQ shares,” Sytchev said. “The U.S. division continues to produce volatile outcome as not having a wide platform does not help. Self-improvement initiatives should pay dividends down the road but this likely a 2025 event, delaying the need to step in right at this moment. We hear from investors that expectations are not aggressive but if the shares do not seem to work in a relatively buoyant market, we could be presented with a more compelling opportunity in case there is any general downdraft.”

As reported by the Globe and Mail, the analyst March 8 maintained his “Sector Perform” rating on ACQ but cut his price target from $24.50 to $22.00.

“Increasing new vehicle production has led to a recovery in inventory – running ahead in the U.S. but also well underway in Canada – likely means prices will pull back from recent highs, hurting margins and increasing the importance of lowering the time to sale to turn over expensive inventory. We expect a similar dynamic to continue playing out in the used market, where it is further along, especially in terms of a pullback in market prices,” Sytchev added.