Lithia Motors Inc. - Value

Americans have long had a love affair with the automobile which even the Great Recession couldn't squelch for forever. Lithia Motors (LAD) is cashing in on the resurgence in auto demand as new vehicle sales jumped 8% in the third quarter.

Lithia Motors is a good barometer on the health of the American consumer because it sells new and used cars, trucks and SUVs in 85 dealerships in both rural and urban areas in many different geographical parts of the country from Alaska, Washington and California to Montana, Iowa and Texas.

It also handles maintenance and repair services which is a hot area as some car owners want to hang onto their cars a little longer and are willing to pay for repairs instead of a new car.

Lithia Surprised By 32.1% in the Third Quarter

On Oct 27, Lithia Motors reported its third straight earnings surprise in a row. Earnings per share were 37 cents which easily beat the Zacks Consensus of 28 cents.

Same store sales rose 12% as both new vehicle sales and service, body and parts sales climbed. Service, body and parts sales increased 2.5% while used car sales rose 20%.

These are good comparisons with the year ago quarter because that was influenced by the Cash for Clunkers car buying bonanza.

Full Year 2010 Guidance Raised

Given the strong quarterly results, Lithia again raised its full year guidance to the range of 84 cents to 86 cents from its July forecast of 72 to 79 cents.

2010 has turned out to be a much better year than expected. Back in April, the company guided only 63 to 69 cents.

It also gave a first look at 2011. Earnings are projected to be sharply higher than 2010, in the range of $1.03 to $1.11 per share. The company is assuming new vehicle same store sales increasing 10% and service, body and parts same store sales rising 1.9%.

Zacks Consensus Estimates Jump

Obviously, analysts moved to raise their estimates to be in line with the earnings beat and the company's new guidance.

The 2010 Zacks Consensus rose to 85 cents from 78 cents in the last week. This is squarely in line with the company's projections.

It is also earnings growth of 70% over 2009.

For 2011, all 3 estimates moved higher in the last 7 days pushing the consensus up to $1.15 from 98 cents. This is higher than the company's initial guidance and continued earnings growth of 35%.

Shares at New Highs But Valuations Aren't

Shares of Lithia Motors have been on the move in recent months and are now trading at new 52-week highs. This is the 2-year chart below.

But even at these levels, the stock still has value. It is trading at just 13x forward estimates while its peers are trading at 16.4x.

It has a price-to-book ratio of 0.9 while its peers are at 1.5. Given its growth rates plus its attractive P/E ratio, it sports a PEG of only 0.6.

Lithia is a Zacks #1 Rank (strong buy) stock.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

 
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