Lithia Motors Inc.
) has beaten the Zacks Consensus Estimate for 10 straight quarters
and raised its EPS outlook for the year in its most recent report.
Shares of this automotive retailer have soared roughly 42%
With a flurry of earnings beats, double-digit earnings growth
projections and attractive growth opportunities through new store
acquisitions, this Zacks #1 Rank (Strong Buy) deserves to be on an
aggressive growth investor's watchlist.
Tenth Straight Beat
Lithia Motors logged second-quarter 2012 adjusted earnings of 76
cents per share on July 25, outstripping the Zacks Consensus
Estimate by 18.75% and marking the 10th consecutive positive
surprise. Profit, as reported, surged 39.5% year over year to $20.5
million (or 78 cents per share) on solid top line growth.
Revenues cruised higher by 26% year over year to $847.1 million,
boosted by strong new vehicle sales. New vehicle retail unit sales
shot up 34.3% to 14,406 units, leading to a 35.3% growth in new
vehicle retail revenues to $470.4 million. The company also
witnessed healthy double-digit growth in used vehicle retail, used
vehicle wholesale, and finance and insurance revenues. Same-store
revenues jumped 24.5% to $815,726.
Driven by the buoyant second quarter results, the company beefed up
its earnings per share guidance for 2012 to between $2.69 and $2.75
from its earlier forecast of $2.45 to $2.53. The company now
expects revenues of $3.2 billion to $3.3 billion, up from its prior
view of $2.9 billion to $3.1 billion.
New Stores to Spur Growth
During the second quarter, Lithia Motors purchased franchises that
are expected to be accretive to its future earnings. The company
bought a Chevrolet Cadillac store in Bellingham, Washington with
estimated annual revenues of $40 million. It also acquired GMC and
Buick in Fairbanks, Alaska, and Dodge and Ram franchises in Las
Cruces, New Mexico, with estimated combined annual revenues of $35
Moreover, Lithia Motors scooped up Texas-based Connell Chevrolet in
August 2012. The store is expected to contribute $60 million to the
company's annual sales.
Earnings Estimates Moving Higher
The Zacks Consensus Estimate for 2012 has moved up by 25 cents (or
10%) over the last 60 days to $2.74 per share, indicating an
estimated annualized growth of roughly 37.5%. For 2013, the Zacks
Consensus Estimate rose by 34 cents (or 12%) over the same period
to $3.07 per share, representing a projected year over year growth
of around 12%.
Lithia Motors is currently trading at a forward P/E of 11.53x, a
modest premium to the peer group average of 11.35x. Its trailing
twelve months P/E of 12.88x is above the peer group average of
10.52x. The price-to-book of 2.13x is also higher than the peer
group average of 1.24x. Moreover, the price-to-sales of 0.26x is
slightly above the peer group average of 0.22x. The premium
valuation is justified given the strong earnings trajectory.
Lithia Motors has a 1-year ROE of 17.5%, higher than its peer group
average of 12.7%, reflecting efficient capital deployment.
Moreover, it has a PEG ratio of 0.77, a 23% discount to the
benchmark of 1 for a fairly priced stock. So, the expected earnings
growth is currently priced at a discount.
Chart Looks Promising
The price and consensus chart shows that the earnings estimates
lines have hovered above the stock price for the most part,
indicating that Lithia Motors is undervalued. The earnings growth
potential is well captured by the gap between the estimate lines
for 2011, 2012 and 2013. A plethora of earnings beats, rising
estimates and upbeat growth prospects make Lithia Motors worth
Founded in 1946, Lithia Motors sells new and used cars and light
trucks, and their replacement parts. It also provides vehicle
maintenance, warranty, paint and repair services, and arranges
related financing, service contracts, protection products and
credit insurance. The company, which has a market cap of $800
million, offers 28 brands of new vehicles and all brands of used
vehicles in 86 stores across the U.S. as of August 27, 2012.
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