Promising Third QuarterOn October 24, Lithia Motors posted a 47.5% rise in third-quarter earnings per share to 90 cents from 61 cents a year ago. The result beat the Zacks Consensus Estimate by 16.9%.
Total revenue grew 24.2% to $888.4 million, driven by strong revenue growth in new vehicle retail (31.4%), used vehicle retail (24.7%) and Finance & Insurance (38.6%).
The company’s selling, general and administrative expenses as a percentage of gross profit declined 340 basis points to 66.8% during the quarter, which is an all-time low.
As part of its continued market expansion plans, Lithia Motors acquired the Connell Chevrolet store in Killeen, Texas on August 27 and upgraded its earnings guidance accordingly. The store has estimated annual revenues of $60 million.
Management at Lithia Motors expects to continue driving sales throughout 2013, due to new safety norms, technological development, better fuel economy in vehicles, improving consumer credit markets and the amount of older vehicles on the road.
The company expects to earn between 64 cents and 66 cents per share in the fourth quarter.
It raised the full-year 2012 EPS guidance to between $2.88 and $2.90 from the prior level of $2.69 to $2.75. The upgraded EPS guidance represents an estimated growth of 44.7% to 45.7% over 2011. Revenue is expected at $3.2 billion to $3.3 billion for the year, reflecting an estimated year-over-year growth of 18.5%–22.2%.
Lithia Motors also projected earnings per share between 65 cents and 67 cents for the first quarter of 2013. It expects to earn between $3.11 and $3.21 per share for full year 2013 based on total revenue of $3.5 billion to $3.6 billion. The earnings guidance suggests a year over year improvement of 8.0%–10.7%, while the revenue outlook implies growth of 9.1%–9.4%.
Strong Estimate Revisions
The Zacks Consensus Estimate for 2012 went up 6.2% in the past 3 months to $2.91 per share, based on upward revisions from 6 of 7 estimates. As for 2013, the Zacks Consensus Estimate increased 5.9% to $3.25 in the same time on the back of upward revisions from 7 of 8 estimates. The estimates for 2012 and 2013 reflect year-over-year growth of 46.4% and 11.5%, respectively.
Valuation is Reasonable
The valuation of Lithia Motors looks reasonable. The company has a PEG ratio of 0.48, which indicates that the stock is undervalued given the long-term earnings growth projection of 25.0%. The stock is currently trading at a forward P/E of 12.4x, which is on par with the peer group average. The company has a higher 1-year ROE of 18.6% versus the peer group average of 12.1%.
Headquartered in Medford, Oregon, Lithia Motors was founded in 1946. The $914.2 million company 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. As of October 26, 2012, the company has offered 29 brands of new vehicles and all brands of used vehicles in 86 stores in the U.S.
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