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Lithia Motors (LAD) Down 11.4% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Lithia Motors (LAD). Shares have lost about 11.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lithia Motors due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Lithia Motors Puts Up a Stellar Show in Q1

Lithia Motors reported first-quarter 2021 adjusted earnings of $5.89 per share, which beat the Zacks Consensus Estimate of $4.73. Higher-than-expected revenues across all units but one led to the outperformance. The bottom line increased a whopping 193% from the prior-year quarter’s $2.01 per share. Total revenues also rose 54.9% year over year to $4,343 million. Moreover, the top line surpassed the Zacks Consensus Estimate of $3,865 million. In fact, for the reported quarter, Lithia Motors claims to have reported the highest quarterly earnings and revenues in its history.

Segmental Performance

New vehicle retail revenues increased 59.7% year over year to $2,193.2 million and topped the Zacks Consensus Estimate of $1,959 million. New vehicle units sold climbed 50% from the prior-year quarter to 53,864. The average selling price of new-vehicle retail rose 6.4% from the prior-year quarter to $40,718.

Used-vehicle retail revenues rose 54.6% year over year to $1,352.2 million and beat the Zacks Consensus Estimate of $1,211 million. Used-vehicle retail units sold grew 38.5% from the year-ago quarter to 59,027. The average selling price of used-vehicle retail improved 11.7% to $22,907 from the year-ago figure of $20,510. Revenues from used-vehicle wholesale surged 102.7% year over year to $135.2 million and surpassed the consensus mark of $92 million.

Revenues from service, body and parts were up 22.5% from the prior-year period to $404 million but fell shy of the Zacks Consensus Estimate of $416 million. The company’s F&I (Finance & Insurance) business recorded 62.8% year-over-year growth in revenues to $198.4 million, topping the consensus estimate of $179 million. Revenues from fleet and others were $60 million, which increased 60.4% year over year, surpassing the consensus mark of $43.36 million.

While same-store new vehicle sales rose 29.4% year over year, same-store used vehicle retail sales increased 32%. While same-store revenues from the F&I business soared 29.7%, that of the service, body and parts unit dropped 1% from the prior-year quarter.

Financial Tidbits

Cost of sales increased 54.8% year over year for first-quarter 2021. However, SG&A — as a percentage of gross profit — decreased from the prior-year level. Encouragingly, pretax and net profit margins improved from the year-ago levels.

Bringing in pleasant news for investors, the board approved a dividend increase of 12.9% from the prior payout. Quarterly dividend of 35 cents a share will be payable on May 21 to shareholders of record as of May 7, 2021.

Lithia had cash and cash equivalents of $170.3 million as of Mar 31, 2021. Long-term debt was $2,124 million, marking an increase from $2,064.7 million as of Dec 31, 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 18.06% due to these changes.

VGM Scores

Currently, Lithia Motors has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Lithia Motors has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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