LAD Lithia Motors Inc

The good times continue to roll for the auto retailers. Lithia Motors, Inc. (LAD) blew by their own first quarter guidance as both new and used car sales saw double digit increases. This Zacks #1 Rank (strong buy) is still cheap with shares trading at just 12.3x forward estimates.

A Reflection of the Economy?

Lithia Motors is a good barometer on the health of the American consumer because it sells new and used cars, trucks and SUVs in 86 dealerships in 12 states.

They are located in both rural and urban areas in many different geographical parts of the country from Alaska, Washington and California to Montana, Iowa and Texas.

It also handles maintenance and repair services which is still a hot area as some car owners want to hang onto their cars a little longer due to the economy and are willing to pay for repairs instead of a new car.

Another Blow Out Quarter

On Apr 27, Lithia reported its first quarter results and blew by not only its own guidance but also the Zacks Consensus Estimate. Earnings per share were 34 cents, well ahead of its guidance of 19 to 21 cents and the Zacks Consensus of 20 cents. It made just 9 cents in the year ago quarter.

Revenue soared 31.3% to $603 million from $459.2 million a year ago. All of the segments saw growth.

New vehicle same store sales jumped 41%. Used vehicle same store sales climbed 17%.

In the maintenance segment, same store sales rose 8% and total maintenance sales rose 11% even though last year there was a Toyota recall which skewed last year higher.

Dividend Increased

Lithia spread the wealth from its strong first quarter to shareholders by raising its quarterly dividend payout to 7 cents from 5 cents per share.

This is a yield of 1.5%.

Raised 2011 Guidance

Lithia is bullish as it sees the economic recovery expanding in its western markets. However, the Japanese earthquake tragedy will interrupt vehicle supply in the second and third quarters of the year.

The company still revised its full year guidance higher, despite the Japanese impact.

Earnings are expected to be in the range of $1.42 to $1.50 per share, up from its Feb 23 guidance of $1.20 to $1.28 per share.

Zacks Consensus Estimates Rise

Given the revised guidance higher, analysts scrambled to raise 2011 estimates.

The 2011 Zacks Consensus Estimate jumped to $1.42 from $1.25 in the last 7 days as 3 estimates moved higher.

That is earnings growth of 50.8%.

2012 doesn't look too shabby either as 3 estimates also moved higher in the prior week, pushing the 2012 Zacks Consensus up to $1.61 from $1.46 per share. That is earnings growth of 13.4%.

Value is the Name of the Game

Lithia has been a value stock for the last 7 months.

In addition to its low P/E, it also has a price-to-book ratio of just 1.4 and a price-to-sales ratio (P/S) of 0.2.

A P/S ratio under 1.0 is usually considered to be undervalued.

With its double digit earnings growth rate and low P/E the company also sports a PEG ratio of just 0.4.

Shares at 3-Year High

Given all the good news, it's not surprising that shares are at 3-year highs.

However, it hasn't been a straight shot higher like some stocks.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

 
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