Bull of the Day: Lithia Motors (LAD)

Lithia Motors (NYSE:LAD) LAD reported a record third quarter as auto demand remains red hot. This Zacks Rank #1 (Strong Buy) is expected to grow revenue by 68.7% in 2021.

Lithia Motors, now known as Lithia & Driveway, or LAD, is one of the country's largest auto retailers. It sells new and used cars but also operates an e-commerce site called Driveway, which allows customers to buy or sell a car online.

The company provides a wide array of products and services for the entire vehicle ownership lifecycle.

A Record Third Quarter

On Oct 20, LAD reported its third quarter and blew by the Zacks Consensus Estimate reporting $11.21 versus the consensus of $9.82.

It was the 7th consecutive earnings beat in a row.

It was a record third quarter on both revenue and earnings per share.

Revenue rose 70.4% to $6.2 billion from $3.6 billion a year ago.

All of its segments saw year-over-year gains withsService, body, and parts revenue gaining 60.9%, new vehicle retail revenue up 53.9% and used vehicle retail jumping 90.2%.

"We excelled at procuring used vehicles during the challenging environment, enabling us to offer consumers the most diverse inventory available, driving same store volume increases while continuing to increase margins," said Bryan DeBoer, Lithia & Driveway's President and CEO.

"In addition, Driveway and our store e-commerce offerings are positioned to gain incremental market share as consumers seek out a more transparent and frictionless buying experience," he added.

Driveway achieved a milestone of 1,000 Driveway Shop units in the quarter.

Additionally, the company expanded outside of the United States for the first time, partnering with Pfaff Automotive to enter Canada.

It also expanded its US footprint with acquisitions in new markets. Those deals are expected to contribute $1.7 billion in annualized revenue.

Analysts Raise Earnings Estimates

After yet another quarterly beat, it's not surprising that the analysts raised full year 2021 and 2022 yet again.

The 2021 Zacks Consensus Estimate jumped to $36.00 from $35.45 before the report. That's earnings growth of 97.9% as the company only earned $18.19 during last year's pandemic impacted year.

2 estimates were also raised for 2022, pushing the Zacks Consensus up to $34.80 from $34.52. That's an earnings decline of 3.8%, however, as the analysts don't believe 2022 could possibly be as hot as 2021.

Shares are Cheap

LAD was a big pandemic winner in 2020 and the shares have gained 116% over the last 2 years.

But fears about "peak" earnings have hit the shares in 2021.

They're only up 15.6% year-to-date and have retreated nearly 9% over the last 3 months.

Image Source: Zacks Investment Research

They remain dirt cheap, with a forward P/E of 9.4.

LAD also has a PEG ratio of just 0.5. A PEG ratio under 1.0 usually indicates a company has both growth and value, a rare combination.

LAD's competitors such as Penske PAG, Group 1 Automotive (NYSE:GPI) GPI and Sonic Automotive (NYSE:SAH) SAH are also cheap. They trade with forward P/Es of 8.3, 6 and 7, respectively.

LAD is shareholder friendly. It pays a dividend, currently yielding 0.4%.

The Street thinks the strong demand for autos is over.

For those investors who think the Street has it all wrong, Lithia is one to keep on your short list.

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