Lathia Motors - Growth & Income

By Brian Bolan,

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Lithia Motors ( LAD ) sees growth in earrings estimates and could see a dividend hike in 2013. The stock is a Zacks #1 Rank (Strong Buy).

Company Description

Lithia Motors is an automotive franchisee and retailer of new and used vehicles. It sells new and used cars and light trucks. They offer replacement parts and service, vehicle maintenance, warranty, paint, and repair services. As of May 1, 2012, the company offered 25 brands of new vehicles and various brands of used vehicles in 84 stores, as well as online at Lithia Motors, Inc. was founded in 1946 and is headquartered in Medford, Oregon.

Lithia Motors posts Seven Straight Positive Earnings Surprises

Lithia Motors has topped the Zacks Consensus Estimate in each of the last seven quarters. The seven beats have come in on average more than $0.13 higher than the Zacks Consensus Estimate. On average, the positive earnings surprises were a massive 47%. The stock has generally reacted positively when the company beats expectations. The stock was up 5.6% on average following the positive earnings surprises.

The largest price movement in the stock came the day after the company posted its second strongest surprise. The March 2011 quarter saw the company beat the topline estimate of $531 million by posting revenues of $603 million. EPS of $0.34 was $0.14 higher than the Zacks Consensus Estimate. In the session following positive earnings surprise the stock increased by 18.7%.

Lithia Motors - ticker LAD> <P ALIGN=

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Lithia Motors Most Recent Reported Earnings

On April 25, 2012 Lithia Motors reported revenue of $759 million, approximately $73 million higher than the Zacks Consensus Estimate and up from $603 million reported in year ago quarter, an increase of 26%. In addition, earnings per share came in at $0.60, $0.18 higher than the Zacks Consensus Estimate of $0.42. The beat of 42% helped lift the stock higher by 8.5% in the session following the release.

Lithia Motors Sees Estimates Moving Higher

Lithia Motors has seen earnings estimates move higher following the recent positive earnings surprise. The Zacks Consensus Estimate for 2012 was as low as $2.04 in January 2012 and has since moved to $2.49. That represents an increase of more than 22%.

Estimates for 2013 have also seen an increase following the most recent quarterly release. Over the same time period as the 2012 earnings estimate increase, the Zacks Consensus Estimate for 2013 stood at $2.30 and has since moved to $2.73. The increase of 18% for 2013 is part of the key driver for the stock. Growth in earnings is key if there is going to be growth in the dividend, something the growth and income investors love to see.


The valuation for Lithia Motors is very attractive. A trailing PE of 11.3x is well below the industry average of 23x and the forward PE of 10x is also far below the 17x industry average. The price to book multiple of 1.7x shows the company trading at a discount to the industry average of 3.1x and price to sale of 0.2x is well below the 0.8x industry average. Growth and income investors may have to complete with value investors when they look at the valuation for Lithia Motors.


Now that I have covered the growth side of this play, let's take a look at the dividend. The company paid a $0.10 dividend on May 9, 2012. That bring the current yield to 1.6%. The previous four quarters saw $0.07 dividends, and four previous to that were $0.05 dividends. The recent growth in the dividend is a good to see, and increases in earnings estimates point to further dividend increases in the future. Prior to the financial crisis years of 2008 and 2009, LAD paid a $0.14 quarterly dividend to shareholders.

The dividend was suspended throughout 2009, and reinstated in 2010. Since the dividend came back, it has increased two times. A two cent increase in 2011 and now a three cent increase in 2012. It is a safe bet that the dividend could increase four cents in 2013 to return to the $0.14 quarterly level that was last paid to shareholders in 2008.

The Chart

A quick look at the two year price chart shows both growth and income investors just what they want to see. A consistent up and to the right trend is once in a while broken by a few downtrends. Crossing the 200 day moving average one time ended up being a wonderful buying opportunity for both growth and income investors. The recent pullback in shares makes them very attractive on both a valuations and potential for an increased dividend in 2013. Lathia Motors is a Zacks #1 Rank (Strong Buy).

Lithia Motors - ticker LAD> <P ALIGN=

Brian Bolan is the Aggressive Growth Stock Strategist for He is also the Editor in charge of the Zacks Home Run Investor service

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Stocks
Referenced Stocks: LAD

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