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Lithia Motors Inc Class A LAD

Morningstar Rating
$255.15 +0.97 (0.38%)
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Company Report

Lithia Earnings: Soft Start to 2024 Does Not Take Away From the Attractive Long-Term Growth Runway

Lithia Motors' first-quarter results suffered from gross margin coming in lower than were modeling for the full year. Adjusted diluted EPS of $6.11 fell 27.6% year over year and missed the $7.89 LSEG consensus. After the February close of the Pendragon deal in the UK, which is a region that has less lucrative financing operations than US dealers, in the April 24 slide deck management lowered its so-called “future state” (think 2030s) long-term operating margin target by 200 basis points to over 5% from 7%. We include floorplan interest in our midcycle operating margin number, and we have lowered our midcycle operating margin by 30 basis points to 4.2%. These changes reduce our fair value estimate by 11% to $445 from $500. Although this is a large valuation cut, we still find Lithia’s long-term growth story very attractive; however, we think our valuation is one that the stock will need beyond 2024-25 to grow into.

Price vs Fair Value

LAD is trading at a 777% premium.
Price
$254.17
Fair Value
$122.00
Uncertainty
High
1-Star Price
$653.65
5-Star Price
$495.00
Economic Moat
Zhkbnq
Capital Allocation
Jrljkspcb

Bulls Say, Bears Say

Bulls

Lithia’s growth runway looks very long to us; acquisitions are opening up new areas of the US, and international expansion just started in 2021 by entering Canada and the UK in 2023.

Bears

Lithia could need additional capital to fund expansion. In addition, it will face increased competition for acquisitions now that it will operate in large cities and with Berkshire Hathaway seeking auto dealer acquisitions.

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News

Trading Information

Previous Close Price
$254.18
Day Range
$254.59257.29
52-Week Range
$229.79331.99
Bid/Ask
$254.59 / $255.27
Market Cap
$6.99 Bil
Volume/Avg
102,421 / 245,046

Key Statistics

Price/Earnings (Normalized)
7.37
Price/Sales
0.22
Dividend Yield (Trailing)
0.77%
Dividend Yield (Forward)
0.80%
Total Yield
1.09%

Company Profile

Lithia Motors is a retailer of new and used vehicles and related services. The company offers about 50 brands of vehicles at nearly 500 stores globally across the US, Canada, and UK. The company has expanded largely through the acquisition of dealerships in smaller regional markets but now seeks to grow in any part of the US and we expect more deals over time in the US and, at times, abroad. Annual revenue in 2023 was $31 billion and we see over $50 billion possible in a few years. The US was 90% of 2023 revenue and the UK second at 6%, the latter should rise significantly with the Pendragon acquisition. In 2023, new-car sales were about 49% of total revenue. Lithia was founded in 1946, went public in 1996, and is the largest US auto dealer. It is based in Medford, Oregon.
Sector
Consumer Cyclical
Industry
Auto & Truck Dealerships
Stock Style Box
Small Value
Total Number of Employees
27,446

Competitors

Valuation

Metric
LAD
BRK.B
AN
Price/Earnings (Normalized)
7.3722.177.84
Price/Book Value
1.101.562.95
Price/Sales
0.222.190.27
Price/Cash Flow
5.3224.205.96
Price/Earnings
LAD
BRK.B
AN

Financial Strength

Metric
LAD
BRK.B
AN
Quick Ratio
0.420.20
Current Ratio
1.410.77
Interest Coverage
4.8718.865.14
Quick Ratio
LAD
BRK.B
AN

Profitability

Metric
LAD
BRK.B
AN
Return on Assets (Normalized)
5.06%3.90%8.24%
Return on Equity (Normalized)
16.01%7.49%43.15%
Return on Invested Capital (Normalized)
7.62%6.61%12.50%
Return on Assets
LAD
BRK.B
AN
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