Lithia Motors, Inc. (NYSE:LAD) just released its quarterly report and things are looking bullish. It was overall a positive result, with revenues beating expectations by 4.1% to hit US$2.8b. Lithia Motors also reported a statutory profit of US$3.38, which was an impressive 116% above what the analysts had forecast. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
After the latest results, the nine analysts covering Lithia Motors are now predicting revenues of US$12.4b in 2020. If met, this would reflect a credible 2.1% improvement in sales compared to the last 12 months. Per-share earnings are expected to swell 11% to US$13.29. Before this earnings report, the analysts had been forecasting revenues of US$11.9b and earnings per share (EPS) of US$9.21 in 2020. There's been a pretty noticeable increase in sentiment, with the analysts upgrading revenues and making a very substantial lift in earnings per share in particular.
With these upgrades, we're not surprised to see that the analysts have lifted their price target 45% to US$225per share. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Lithia Motors, with the most bullish analyst valuing it at US$284 and the most bearish at US$130 per share. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that Lithia Motors' revenue growth is expected to slow, with forecast 2.1% increase next year well below the historical 12%p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 9.8% per year. Factoring in the forecast slowdown in growth, it seems obvious that Lithia Motors is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Lithia Motors following these results. Fortunately, they also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Lithia Motors analysts - going out to 2022, and you can see them free on our platform here.
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Lithia Motors , and understanding them should be part of your investment process.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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