Lithia Motors Inc. (LAD) has beaten the Zacks Consensus Estimate for 10 straight quarters and raised its EPS outlook for the year in its most recent report. Shares of this automotive retailer have soared roughly 42% year-to-date.
With a flurry of earnings beats, double-digit earnings growth projections and attractive growth opportunities through new store acquisitions, this Zacks #1 Rank (Strong Buy) deserves to be on an aggressive growth investor's watchlist.
Tenth Straight Beat
Lithia Motors logged second-quarter 2012 adjusted earnings of 76 cents per share on July 25, outstripping the Zacks Consensus Estimate by 18.75% and marking the 10th consecutive positive surprise. Profit, as reported, surged 39.5% year over year to $20.5 million (or 78 cents per share) on solid top line growth.
Revenues cruised higher by 26% year over year to $847.1 million, boosted by strong new vehicle sales. New vehicle retail unit sales shot up 34.3% to 14,406 units, leading to a 35.3% growth in new vehicle retail revenues to $470.4 million. The company also witnessed healthy double-digit growth in used vehicle retail, used vehicle wholesale, and finance and insurance revenues. Same-store revenues jumped 24.5% to $815,726.
Driven by the buoyant second quarter results, the company beefed up its earnings per share guidance for 2012 to between $2.69 and $2.75 from its earlier forecast of $2.45 to $2.53. The company now expects revenues of $3.2 billion to $3.3 billion, up from its prior view of $2.9 billion to $3.1 billion.
New Stores to Spur Growth
During the second quarter, Lithia Motors purchased franchises that are expected to be accretive to its future earnings. The company bought a Chevrolet Cadillac store in Bellingham, Washington with estimated annual revenues of $40 million. It also acquired GMC and Buick in Fairbanks, Alaska, and Dodge and Ram franchises in Las Cruces, New Mexico, with estimated combined annual revenues of $35 million.
Moreover, Lithia Motors scooped up Texas-based Connell Chevrolet in August 2012. The store is expected to contribute $60 million to the company's annual sales.
Earnings Estimates Moving Higher
The Zacks Consensus Estimate for 2012 has moved up by 25 cents (or 10%) over the last 60 days to $2.74 per share, indicating an estimated annualized growth of roughly 37.5%. For 2013, the Zacks Consensus Estimate rose by 34 cents (or 12%) over the same period to $3.07 per share, representing a projected year over year growth of around 12%.
Lithia Motors is currently trading at a forward P/E of 11.53x, a modest premium to the peer group average of 11.35x. Its trailing twelve months P/E of 12.88x is above the peer group average of 10.52x. The price-to-book of 2.13x is also higher than the peer group average of 1.24x. Moreover, the price-to-sales of 0.26x is slightly above the peer group average of 0.22x. The premium valuation is justified given the strong earnings trajectory.
Lithia Motors has a 1-year ROE of 17.5%, higher than its peer group average of 12.7%, reflecting efficient capital deployment. Moreover, it has a PEG ratio of 0.77, a 23% discount to the benchmark of 1 for a fairly priced stock. So, the expected earnings growth is currently priced at a discount.
Chart Looks Promising
The price and consensus chart shows that the earnings estimates lines have hovered above the stock price for the most part, indicating that Lithia Motors is undervalued. The earnings growth potential is well captured by the gap between the estimate lines for 2011, 2012 and 2013. A plethora of earnings beats, rising estimates and upbeat growth prospects make Lithia Motors worth considering.
Founded in 1946, Lithia Motors 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. The company, which has a market cap of $800 million, offers 28 brands of new vehicles and all brands of used vehicles in 86 stores across the U.S. as of August 27, 2012.
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