) recently delivered its 14th consecutive positive earnings
surprise, driven by a double-digit increase in both new and used
Management also raised its guidance for the remainder of 2013,
prompting analysts to revise their estimates significantly higher.
This sent the stock to a Zacks Rank #1 (Strong Buy).
Although shares of Lithia Motors have had a spectacular run, with
shares trading at a reasonable 16x forward earnings, this stock
appears to have plenty of gas left in the tank.
Lithia Motors is the 9th largest automotive retailer in the United
States with 91 stores in 11 states. It sells 27 brands of new
vehicles and all brands of used vehicles.
Second Quarter Results
Lithia reported excellent second quarter results on July 24.
Adjusted earnings per share jumped 42% to $1.05, beating the Zacks
Consensus Estimate by 13 cents. It was the company's 14th
consecutive positive earnings surprise.
Revenue soared 23% to $1.009 billion, ahead of the consensus of
$986.0 million. Both new and used vehicle same store sales rose 19%
as the automotive sector continues to recover from the depths of
the Great Recession.
Adjusted selling, general and administrative expenses as a
percentage of revenue improved 80 basis points to 10.5% as Lithia
leveraged its fixed expenses.
Following strong second quarter results, management raised its
earnings guidance higher for the remainder of 2013. The company now
expects to earn between $3.80 and $3.85 on revenues of $3.9-$4.0
This revision was above consensus at the time and prompted analysts
to raise their estimates significantly higher for both 2013 and
2014. This sent the stock to a Zacks Rank #1 (Strong Buy).
The Zacks Consensus Estimate for 2013 is now $3.83, corresponding
with 30% EPS growth. The 2014 consensus is currently $4.37,
representing 14% EPS growth.
You can see the sharp increase in consensus estimates in the
company's 'Price & Consensus' chart:
Shares of Lithia have been on a tear, particularly over the last
year or so, as you can see here:
Despite this, the valuation picture still looks reasonable with
shares trading at 16x 12-month forward earnings.
The Bottom Line
With improving industry trends, excellent earnings momentum and
reasonable valuation, this Zacks Rank #1 (Strong Buy) stock still
has plenty of gas left in the tank.
Todd Bunton is the Growth & Income Stock Strategist for
and Editor of the
Income Plus Investor service
LITHIA MOTORS (LAD): Free Stock Analysis Report
To read this article on Zacks.com click here.