Value Play: Lithia Motors (LAD)

Lithia Motors, Inc. (LAD) has raised 2010 guidance twice this year as car sales have taken off. LAD is a rare value stock which also has growth as its PEG ratio stands at just 0.6.

Lithia Motors is the 9th largest automotive retailer in the United States and sells new and used cars, trucks and SUVs in both urban and rural areas of Alaska, Washington, Oregon, California, Nevada, Montana, Idaho, Colorado, Iowa and Texas.

Founded in 1946 as a single dealership in Ashland, Oregon, the company now operates 85 stores. It also provides maintenance and repair services at all of its locations as well as arranging finance and credit.

Lithia Surprised on Estimates By 35% in the Second Quarter

On July 29, Lithia Motors reported its second quarter results which beat the Zacks Consensus for the third time in the last 4 quarters as the auto industry continued to recover from its worst year in decades.

Earnings per share were 27 cents compared to the consensus of 20 cents. The company made 22 cents in 2009 but there were 4.9 million additional shares in 2010 due to an equity offering at the end of 2009.

Revenue was up 20% to $534 million from $444 million in the second quarter of 2009 mainly due to a jump in new vehicle sales. Same stores sales were up 19% but new vehicle same store sales rose 26% whereas used vehicle sales climbed a still impressive 15%.

Service, body and parts were flat year over year.

“Our operational results exceeded our expectations due to a strong April and May,” said Sid DeBoer, Chairman and CEO.

“We have focused on maintaining our service, body and parts sales volumes despite fewer units in operation and lower warranty revenues,” he added.

2010 Guidance Raised

Given the earnings surprise, and announced acquisitions and dispositions, Lithia raised its full year earnings guidance to the range of 72 to 77 cents from its April guidance of 63 to 69 cents.

New vehicle same store sales are expected to rise 12.4% in 2010 which is much higher than the company’s April forecast of just 5.9%. Used vehicle same store sales are expected to increase 14.1% in 2010.

Zacks Consensus Estimates Rise

All 3 estimates for 2010 have risen in the past month, pushing the 2010 Zacks Consensus Estimate higher by 10 cents to 79 cents. This is 2 cents higher than the company’s recent revised guidance.

Analysts now expect 2010 earnings to grow by 57.3%.

2011 doesn’t look too shabby either. Analysts expect 28.4% earnings growth for the year.

Value Fundamentals

Lithia Motors has a forward P/E ratio of just 10.1, which is well under the industry average of 14.3.

Its price-to-book ratio is also an attractive 0.7 whereas the industry is at 1.8.

Lithia also rewards its shareholders by paying a dividend currently yielding 2.5%. That’s a nice dividend in any sector, but amongst the auto retailers it hits it out of the park as the industry, on average, doesn’t pay a dividend.

Lithia Motors is a Zacks #1 Rank (strong buy) stock.

LITHIA MOTORS (LAD): Free Stock Analysis Report

About Tracey Ryniec 60 Articles

Affiliation: Zacks Investment Research

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

Visit: Zacks Investment Research

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