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Lithia Motors Inc LAD

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Morningstar’s Analysis

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Lithia's First Quarter Is a Record; Growth From Acquisitions and Driveway Looks Healthy

Analyst Note

| David Whiston, CFA, CPA, CFE |

Lithia reported record first-quarter results with adjusted diluted EPS of $5.89 beating the Refinitiv consensus of $4.76. Total revenue increased 54.9% year over year while same-store revenue rose by 27.6% with all segments except service (which fell by 1%) posting about 30% growth. Service continues to suffer from a decrease in miles driven from the pandemic, but we feel maintenance can only be deferred not canceled, so we expect a recovery next year at the latest. Healthy gross profit increases from low inventory giving Lithia pricing power should in our view continue to drive profit growth until at least the second half of the year. We are leaving our fair value estimate in place and continue to model Lithia acquiring $6 billion of annual revenue in 2021. The recently announced acquisition of The Suburban Collection in the Detroit area, one of the larger U.S. dealer groups and a new market for Lithia, adds annualized revenue of $2.4 billion and is a large step toward Lithia’s expansion to $50 billion of revenue and $50 EPS by 2025. Management also announced a 13% quarterly dividend increase to $0.35 per share. We believe shareholders should expect equity dilution to fund some growth based on management saying on the call it is willing to issue shares for a deal, or if need be to get the leverage ratio below 3 times EBITDA, but $50 EPS is such large growth that we don’t mind some dilution to get there. Net debt to EBITDA is only 1.67 times at March 31.

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Company Profile

Business Description

Lithia Motors is a retailer of new and used vehicles and related services. The company offers 33 brands of vehicles at over 200 stores in 22 states. The company has expanded largely through the acquisition of dealerships in smaller regional markets and via deals in New York and Southern California. Annual revenue in 2020 was $13.1 billion. In 2020, new-car sales were about 52% of total revenue. Lithia was founded in 1946, went public in 1996, and is now one of the largest U.S. auto dealerships. It is based in Medford, Oregon.

Contact
150 N. Bartlett Street
Medford, OR, 97501
T +1 541 776-6401
Sector Consumer Cyclical
Industry Auto & Truck Dealerships
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 14,538

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