Lithia Motors Inc.
) continues to impress investors with a double-digit earnings
growth and a promising outlook, based on its strong sales momentum
and profitable market expansion strategies. This automotive
retailer delivered the highest quarterly EPS in its history in the
third quarter of the year, leading to strong estimate revisions.
With a price-to-sales (P/S) ratio as low as 0.27, this Zacks #1
Rank (Strong Buy) is a true value pick.
Promising Third Quarter
On October 24, Lithia Motors posted a whopping 47.5% rise in
third-quarter earnings per share to 90 cents from 61 cents a year
ago, surpassing the Zacks Consensus Estimate by 16.9% and marking
the 11th straight quarter with a positive surprise.
Total revenue grew 24.2% to $888.4 million driven by strong revenue
growth in new vehicle retail (31.4%), used vehicle retail (24.7%)
and finance & insurance (38.6%).
The company's selling, general and administrative (SG&A)
expenses as a percentage of gross profit declined 340 basis points
to 66.8% during the quarter, which is an all-time low.
As part of its continued market expansion plans, Lithia Motors
acquired Connell Chevrolet in Killeen, Texas on August 27 and
upgraded its earnings guidance accordingly. The store has estimated
annual revenues of $60 million.
The management at Lithia Motors believes new safety norms,
technological development, better fuel economy, improving consumer
credit markets and an aging fleet of vehicles on the road will
continue to drive sales through the remainder of 2012 and in 2013.
The company raised its full-year 2012 EPS guidance to between $2.88
and $2.90 from the prior level of $2.69 to $2.75. The upgraded EPS
guidance represents estimated growth of 44.7%-45.7% over 2011. The
projection is based on revenue expectation of between $3.2 billion
and $3.3 billion for the year, which reflects an estimated growth
For 2013, LAD expects between $3.11 and $3.21 per share based on
total revenues of $3.5 billion to $3.6 billion. The earnings and
revenue guidance reflect estimated year-over-year growth of
8.0%-10.7% and 9.1%-9.4%, respectively.
Lithia Motors expects to earn between 64 cents and 66 cents per
share in the fourth quarter of the year, and also projected
earnings per share between 65 cents and 67 cents for the first
quarter of 2013.
Strong Estimate Revisions
The Zacks Consensus Estimate for 2012 rose 6.2% in the past three
months to $2.91 per share, including a rise of 5.8% in the past 7
days on upward revisions from all 6 estimates. As for 2013, the
Zacks Consensus Estimate is up 8.4% to $3.23 in the last 90 days
and 4.9% in the past week based, again, on upward revisions from
all 6 estimates. The estimates for 2012 and 2013 reflect
year-over-year growth of 46.3% and 11.0%, respectively.
Shares of Lithia Motors are on the rise with an impressive one-year
return of 65.4%. With positive earnings surprises stretching back
to 2010, the upward shifts in the 2013 and 2014 estimate lines
clearly indicate that the stock should continue to advance.
Lithia Motors has strong value characteristics. In addition to a
low P/S, it is currently trading at a forward P/E multiple of 11.7
and a P/B multiple of 2.1 (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 18.6%, which is higher than its
peer group average of 14.5%. It also has a PEG ratio of 0.78, which
is less than 1 and indicates that the stock is reasonably valued
given the long-term expected growth of 25.0%.
Headquartered in Medford, Oregon, Lithia Motors was founded in
1946. The $860.7 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 September 30, 2012, the company has offered
29 brands of new vehicles and all brands of used vehicles in 87
stores in the U.S.
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