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Here's Why You Should Hold on to Lithia Motors (LAD) for Now

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Zacks Equity Research
·3 min read
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Lithia Motors’ LAD shares have rallied more than 91% on a year-to-date basis, handily outperforming the industry’s rally of 34%. The Zacks Consensus Estimate for 2021 earnings and sales points to an increase of 17% and 42%, respectively. The company is banking on diversified product mix, strategic acquisitions and robust e-commerce initiatives. While rising competition, soaring coronavirus cases and elevated leverage of the firm raise concerns, there are still multiple factors working in favor of the Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lithia Motors’ multiple streams of income reduce its risk profile. The company generates income from businesses including used and new vehicle retail, finance, insurance, as well as automotive repair and maintenance. The used-vehicle business is especially a bright spot for Lithia Motors. Diversified portfolio positions it well for top and bottom-line growth.

Lithia Motors’ strategic acquisitions are bolstering its prospects. The recent acquisition of Keyes Automotive dealerships is expected to add $1.4 billion to the company’s annualized revenues. This brings its network expansion to more than $3.2 billion in revenues so far in 2020. The company also acquired Latham Ford and John Eagle dealerships, which will add $55 million and $1.1 billion, respectively, to the auto retailer’s annualized revenues. Prior to that, Lithia Motors announced the acquisition of the Smolich Chrysler Jeep Dodge Ram, and Nissan locations in Oregon and Ladin Subaru in California. Earlier this year, the company acquired two Lexus stores. The firm’s robust network expansion bodes well.

Further, enhanced digital solutions — including Driveway e-commerce program — are helping Lithia to further boost profitability and market presence. Further,cost-cut initiatives undertaken by the firm amid coronavirus-led uncertainty are aiding margins. The firm’s investor-friendly moves also boost shareholders’ confidence. Despite coronavirus-led uncertainty that has prompted many companies to suspend payouts, Lithia Motors continues to pay dividends, in turn preserving shareholder value. In fact, the board recently hiked the payout by a penny per share. The company — which shares space with Penske Automotive PAG, Group 1 Automotive GPI and Asbury Automotive Group ABG — has managed to grow its dividend for the last nine consecutive years.

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Penske Automotive Group, Inc. (PAG) : Free Stock Analysis Report
 
Lithia Motors, Inc. (LAD) : Free Stock Analysis Report
 
Group 1 Automotive, Inc. (GPI) : Free Stock Analysis Report
 
Asbury Automotive Group, Inc. (ABG) : Free Stock Analysis Report
 
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