Research analyst John Murphy upped his estimate on the nation's largest auto retailer to "Buy" from "Underperform," adding that the Fort Lauderdale, Fla.-based company, as well as other dealerships, stand to benefit from the program in the third and fourth quarters of the year.

The company's target price was also raised to $23 from $16.

"We believe that AutoNation is a high-quality name and that growth and cost savings potential justify our increased estimates," said Murphy in a research note. "In the short term we anticipate a confluence of factors that stand to benefit the dealers."

Shares of AutoNation rose 39 cents, or 2.1. percent, to $18.88 in morning trading.

Murphy estimated that the clunkers program would lift the annualized selling rate by nearly 30 percent in the third quarter from the second quarter. But a "slight correction" is expected in vehicle sales during the fourth quarter.

Lower-than-expected inventory on dealer lots may also improve AutoNation's financial position, Murphy wrote, as demand for vehicles may lead to better pricing power and lower floorplan interest expenses.

Florida and California - states hit hard by home foreclosures - were previously a liability to AutoNation, but signs of economic stabilization in those states may give AutoNation an additional financial boost, Murphy said.

A service of YellowBrix, Inc.