Headquartered in Medford, Oregon, Lithia Motors, Inc. (LAD) is an automotive retailer in the United States. It provides new and used vehicles, vehicle financing services, warranties, insurance contracts, vehicle and theft protection services, and automotive repair and maintenance services. The company’s shares have gained 3.9% in price over the past month and 5.1% over the past six months to close yesterday’s trading session at $308.28.

In terms of forward non-GAAP P/E, the stock is currently trading at 6.58x, which is 47.1% lower than the 12.42x industry average. Also, its 0.49x forward EV/Sales is 56.5% lower than the 1.12x industry average. Furthermore, LAD’s 0.31x forward Price/Sales is 67.1% lower than the 0.93x industry average. In addition, the company’s revenue and EBITDA have grown at CAGRs of 28% and 56.9%, respectively, over the past three years. Furthermore, LAD’s net income and EPS have increased at 66.5% and 55.1% annualized rates, respectively, over the past three years.

LAD recently purchased three Stellantis stores in Las Vegas, expanding its brand mix in the growing market. Together the stores are expected to generate $400 million in annualized revenues. LAD has generated $1.1 billion in annualized revenues year-to-date, and since the announcement of its2025 Plan in July 2020, the company has generated $11.5 billion in annualized revenues.

Here is what could shape LAD’s performance in the near term:

Strategic Collaboration

Last month, LAD announced the first addition to its Canadian portfolio, Sisley Honda, based in Thornhill, Ontario. Sisley Honda is one of the highest-volume Honda dealerships in Canada, and the addition will increase LAD’s Canadian footprint with a strong, mainstream import brand. Bryan DeBoer, President and CEO of Lithia & Driveways said, ” With this addition, we are able to expand our omnichannel network in Canada, strengthening our position in one of the top Canadian markets.”

In March, Pfaff Motorsports and LAD announced a partnership built around the team’s 2022 campaign in the IMSA WeatherTech SportsCar Championship GTD-Pro category. LAD’s online platform–Driveway.com–provides consumers across the United States the ability to buy, sell and service their vehicles from the convenience of their own homes. Driveway.com, which is distinctive in the industry, offers online purchasing and fast online financing from 24 lender partners for both new and used cars. Consumers can finish the purchase of a new or used vehicle online and have the vehicle delivered directly to their driveway.

Robust Financials

For the first quarter, ending March 31, 2022, LAD’s revenues increased 39.6% year-over-year to $3.06 billion. Its income from operations grew 115.2% from its year-ago value to $512.80 million, while its net income amounted to $343.60 million, up 119.1% from its prior-year quarter. The company’s EPS has risen 98.8% year-over-year to $11.55. In addition, its Driveway completed 3,100 transactions in March, with quarterly transaction volumes increasing by more than 1,000%.

Strong Profitability

LAD’s 32.3% trailing-12-month ROE is 85.1% higher than the 17.5% industry average. Also, its trailing-12-month ROC and ROA are 14.1% and 10.3% higher than the respective industry averages. Furthermore, its 2.5% trailing-12-month asset turnover ratio is 140.6% higher than the 1.03% industry average.

Impressive Growth Prospects

The Street expects LAD’s revenues and EPS to rise 21.3% and 7.1%, respectively, year-over-year to $6.74 billion and $11.91 in the second quarter, ending June 30, 2022. In addition, LAD’s EPS is expected to rise at a 20.9% CAGR over the next five years. Furthermore, the company has an impressive earnings surprise history; it topped the Street’s EPS estimates in each of the trailing four quarters.

Consensus Rating and Price Target Indicate Potential Upside

Among the six Wall Street analysts that rated LAD, five rated it Buy. The 12-month median price target of $578.00 indicates a 38.3% potential upside. The price targets range from a low of $260.00 to a high of $578.00.

POWR Ratings Reflect Solid Prospects

LAD has an overall B grade, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. LAD has a B grade for Growth, Sentiment, and Value. LAD’s promising financial performance is consistent with the Growth grade. The consensus estimates and price targets justify the Sentiment grade. In addition, its lower-than-industry valuation multiples are in sync with the Value grade.

Among the 25 stocks in the B-rated Auto Dealers & Rentals industry, LAD is ranked #8.

Beyond what I stated above, we have graded LAD for Quality, Stability, and Momentum. Get all LAD ratings here.

Bottom Line

The company’s robust revenue growth across all its segments has raised investor confidence regarding its future performance. In addition, various strategic advancements to boost its operational performance should further bolster its prospects. Therefore, given the stock’s discounted valuation and solid growth attributes, we think it could be an opportune time for investors to scoop up its shares.

How does Lithia Motors Inc. (LAD) Stack Up Against its Peers?

LAD has an overall POWR Rating of B, which equates to a Buy. Check out these other stocks within the Auto Dealers & Rentals industry with A (Strong Buy) ratings: Rush Enterprises, Inc. (RUSHA), Penske Automotive Group, Inc. (PAG), and AutoNation Inc. (AN).

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LAD shares were trading at $309.15 per share on Wednesday afternoon, up $0.87 (+0.28%). Year-to-date, LAD has gained 4.38%, versus a -12.59% rise in the benchmark S&P 500 index during the same period.

About the Author: Spandan Khandelwal

Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing. More...

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