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Summary

  • Lithia Motors was up nearly 5% today on a positive 2Q earnings release.
  • The move is being driven by strong sales and economy in its key states, which is what we expected.
  • But continued GDP growth in these states should continue driving the company, while new stores on the East Coast adds to that growth.

Lithia Motors (NYSE:LAD) posted double-digit same store sales growth across all its business lines, for the first time ever. Revenues were up 21% Y/Y and EPS was $1.34 a share. That's up from the 2Q 2013 EPS of $1.05 and beat Wall Street's estimates by 27%. Lithia upped its fiscal 2014 EPS guidance to $4.95 to $5.00. That's up from the previous guidance of $4.57 to $4.65, and above Wall Street's 3Q consensus of $4.84.

We profiled Lithia Motors back in September. Shares are up 30% since then. The company has been riding the coattails of a rebounding auto market. But its real strength comes from two of the best performing states in the U.S. when it comes to GDP.

As we noted:

"Texas and Oregon are LAD's key states. The company has 15 stores in Texas and 19 in Oregon, and 25% of revenues are derived from the state of Texas, while Oregon accounts for 20%. And it just so happens that both of these states are in the top three when it comes to GDP growth from '08 to '12."

It just so happens that in the second quarter, Lithia bought up 3 stores in Texas, Oregon and Alaska. Continued strength in these key states (per JPMorgan GDP estimates) should continue driving the company higher, as well as its ability to increase earnings growth with expansion on the East Coast.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Update: Lithia Motors Earnings - Rises To 52-Week High

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