AutoNation……hmmmmm

AutoNation (AN) looks more appealing each time I look at it.

Still thinking about autos and no, not Ford (F) or GM (GM).

Eddie Lampert, can’t seem to buy it fast enough and he currently owns over 35% of the company.

Forecasts this year call for about 15.5 million cars to be sold. Now, interesting tidbit. On CNBC Wednesday, CEO and Chairman Mike Jackson did an interview and was speaking of running his (or any) business. In the interview he said he runs his business for “a 1,000 year flood”. He then said that if auto sales dropped to 10 million units, “a depression” he called it, his business would be “cash flow neutral”. That is his based for decision making.

As a potential investor, this is fantastic news. It simply means that the business will still produce cash even in an almost devastating economic climate. Wonderful…

It also makes sense as to Lampert’s interest in the company. Lampert is a cash and balance sheet investor (See Sears Holdings (SHLD)). A positive cash company in the current economic climate makes for tremendous flexibility competitors will not have. Jackson can reduce debt, repurchase shares or expand. In fact, Jackson has reduced share count by 30% the last two years. The repurchases have allowed EPS to stay flat at $1.44 despite the downturn in the auto industry during that time frame.

In the past two years, U.S. auto retail sales have declined 12 percent, Jackson said in early February and he said that economic downturns run in cycles of 30 to 40 months, and the market is currently 24 months into the downswing.

AutoNation’s markets in California and Florida, who account for half of new vehicle sales drove down earnings last year. The two states account for 20 percent of industry-wide new vehicle sales.

When things get better, investor ought to see an amplified increase on the other end due to the repurchases. Hold flat in down times and explode up in good ones, very nice.

Disclosure (“none” means no position):None, yet