LAD Lithia Motors Inc

How does Lithia Motors, Inc. (LAD) keep doing it? This Zacks #1 Rank (strong buy) recently surprised on the Zacks Consensus Estimate (again) and raised full year guidance for the second time this year. Lithia has the magic combination of both growth and value, as it trades with a PEG ratio of just 0.5.

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.

Lithia Posts Another Big Earnings Surprise

On July 27, Lithia reported its second quarter results and beat the Zacks Consensus Estimate for the 6th quarter in a row. Earnings per share were 55 cents compared to the Zacks Consensus of just 35 cents.

This was the highest second quarter earnings since 2006.

Revenue jumped 30% to $689.1 million from $530.2 million last year.

The company saw gains across all of its segments. New vehicle same store sales increased 24%. Used vehicle retail same store sales jumped 16%.

Consumers were also servicing their cars as Service, Body and Parts climbed 5%.

Raised Guidance For the Year...Again

Lithia acknowledges that the rest of the year could have some surprises.

"Gas prices have fluctuated over the past three months, unemployment remains high and the supply disruption that affected Japanese manufacturers will reduce vehicle availability through the third quarter," said Sid DeBoer, Chairman and CEO of Lithia.

"We anticipate new vehicle inventory will recover to normal levels by the first quarter of 2012," he said.

Yet the company also raised full year guidance for the second time this year to the range of $1.67 to $1.73 per share. By comparison its first guidance in February called for a range of $1.20 to $1.28 per share.

Zacks Consensus Estimates Jump

Yet again, analysts raised full year estimates after another solid earnings surprise. The 2011 Zacks Consensus Estimate climbed 30 cents to $1.73 per share since the report.

The Magic Combination

Lithia is expected to grow earnings by 57% in 2011.

The company also has a P/E ratio of 12.

The low P/E ratio combined with the strong earnings growth results in a PEG ratio of just 0.5. A PEG under 1.0 usually indicates a company is undervalued.

To top it off, Lithia also has a price-to-sales ratio of just 0.2. A P/S ratio under 1.0 is usually considered undervalued.

Shares have pulled back from 2-year highs in the last few weeks but the chart is still very impressive.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.

 
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