Lithia Motors, Inc. - Value
October 31 2011 - 8:00PM
Zacks
Lithia Motors, Inc. (LAD) has done it again as the auto
retailer recently surprised on the Zacks Consensus for the 7th
straight quarter. This Zacks #1 Rank (strong buy) continues to be a
value stock, with a forward P/E of just 11.3.
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 11 states.
Headquartered in Oregon, the company has locations
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 Surprised By 30% in the Third
Quarter
On Oct 26, Lithia reported its third quarter
results and once again surprised on the Zacks Consensus Estimate.
Earnings per share were 61 cents compared to the Consensus of 47
cents. The company made just 36 cents in the third quarter of
2010.
Revenue rose 29% to $737.9 million from $573
million a year ago.
Once again, the company saw increases across all
segments.
New vehicle same stores sales jumped 28% which the
company reported was well above the national average. Its import
sales actually rose even though there was a shortage of import
brand new vehicle inventory.
Used vehicle same store sales rose 14% while
service, body and parts same store sales climbed 3%.
Outlook for 2011 and 2012
Lithia provided updated 2011 full year guidance of
between $1.86 and $1.88 per share. This was above the Zacks
Consensus so the analysts have been busy scrambling to raise their
estimates.
The 2011 Zacks Consensus Estimate jumped to $1.88
from $1.71 in the last week.
That is earnings growth of 100% compared to the 94
cents the company made in 2010.
But what about 2012?
Growth is expected to slow. The company is
projecting earnings in the range of $1.95 to $2.05. The analysts
had been at just $1.92 so those estimates have also been revised
higher.
The 2012 Zacks Consensus jumped to $2.01 from
$1.92, or about right in the middle of the company's range. It's
earnings growth of about 7%.
Big October Rally
Shares had sold off hard over the summer but like a
lot of stocks, Lithia rallied in October.
Despite the surge in the stock, there's still a lot
of value.
Lithia has a price-to-book ratio of just 1.6, which
is well under the ratio of 3.0 I usually use to determine
value.
It also has a solid price-to-sales ratio of 0.2. A
P/S ratio under 1.0 likely indicates a company is undervalued.
With 100% earnings growth expected in 2011 and the
low P/E, Lithia has a PEG ratio of just 0.5. A PEG under 1.0
usually indicates value.
Lithia has been surprising on the Zacks Consensus
for nearly 2 years. Its also had double digit earnings growth over
that time. Lithia's sales results indicate that America's love
affair with the automobile continues.
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