Lithia Motors - Value

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Earnings momentum for Lithia Motors Inc. ( LAD ) 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.

Optimistic Guidance

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% to 22.2%.

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.

Attractive Value

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

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

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