Earnings momentum for
Lithia Motors Inc.
) has jumped in the past seven days after the automotive retailer
reported an impressive second quarter performance, which included a
positive surprise of 18.8%. The company continues to generate
impressive earnings growth based on its sales momentum and market
expansion strategies. With a price-to-sales (P/S) ratio of just
0.23, this Zacks #1 Rank (Strong Buy) stock is a true value pick.
Impressive Second Quarter
On July 25, Lithia Motors posted a whopping 40.7% rise in
second-quarter profits to 76 cents per share, marking its 10th
straight positive surprise since March 2010. Total revenue grew
26.0% to $847.1 million, driven by strong new vehicle sales.
New vehicle sales surged 3,681 units or 34.3% to 14,406 units,
leading to a robust 35.3% growth in revenues to $470.4 million. The
company's other businesses also recorded strong revenue growth,
including 33.4% in finance and insurance. Same-store revenues grew
24.5% to $815,726.
During the quarter, Lithia Motors acquired franchises that will be
accretive to its future earnings. They include Chevrolet Cadillac
in Bellingham, Washington (with estimated annual revenues of $40
million), GMC and Buick in Fairbanks, Alaska and Dodge and Ram in
Las Cruces, New Mexico. Estimated annual revenues from the last two
franchises amount to $35 million.
Lithia Motors expects to earn between 74 cents and 76 cents per
share in the third quarter of the year, implying an estimated
year-over-year growth of 21.3% to 24.6%. The company has also
projected full-year EPS between $2.69 and $2.75, representing an
estimated growth of 35.2% to 38.2% over 2011.
It expects to generate revenues between $3.2 billion and $3.3
billion for the year, which reflects an estimated growth of 18.5%
Earnings Momentum Moving Up
In the last 7 days, the Zacks Consensus Estimate for 2012 increased
8.0% to $2.69 based on upward revisions from 4 of 5 estimates. The
Zacks Consensus Estimate for 2013 advanced 9.2% to $2.98 as 5 of 6
estimates headed higher. The estimates for 2012 and 2013 reflect an
annualized growth of 35.2% and 10.8%, respectively.
Shares of Lithia Motors have been on an upward trajectory,
excluding a short dip in the second half of 2011. However, shares
began to rise with the recovery in inventory and reached its
52-week high of $27.99 on May 1, 2012.
Lithia Motors has strong value characteristics. In addition to a
low P/S, it is currently trading at a forward P/E multiple of 10.3
and a P/B multiple of 1.9 (a P/S ratio lower than 1.0, a P/E below
15.0 and a P/B ratio under 3.0 generally indicate value). Moreover,
the company has a 1-year ROE of 17.5%, which is higher than its
peer group average of 14.2%. It also has a PEG ratio of 0.69, which
is less than one and indicates that the stock is reasonably valued
given the expected growth.
Headquartered in Medford, Oregon, Lithia Motors was founded in
1946. The $723.2 million company 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. As of July 27, 2012, the company has offered 27
brands of new vehicles and all brands of used vehicles in 85 stores
in the U.S.
LITHIA MOTORS (LAD): Free Stock Analysis Report
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