Why Lithia Motors Inc. Shares Revved Up Today

Is Lithia Motors' stock move meaningful or just another movement?

Jun 16, 2014 at 5:02PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Lithia Motors (NYSE:LAD) gained more than 12% Monday after the car dealership chain announced the acquisition of DCH Auto Group.  

So what: Lithia said it would pay $362.5 million to take control of DCH, which gives the buyer 27 additional dealerships in California, New Jersey, and New York, bringing its grand total to 128. Management expects the new locations to deliver additional income of $0.12 to $0.14 per share this year, and $0.65 to $0.75 per share a year after that. DCH's management team will remain in control of the DCH stores, and the deal is expected to close in the fourth quarter of this year.

Now what: In its press release, Lithia explained that the new dealerships will help it build out its metro market strategy with dealerships in the New York and Los Angeles areas.  Prior to the DCH acquisition, Lithia had no presence on the East Coast, and Lithia CEO Bryan DeBoer called DCH an "ideal strategic partner" for the eastern United States. Considering the impact the new stores are expected to make, the deal seems like a smart move, as DCH should add close to $20 million in profit per year. The DCH acquisition is just the latest purchase for Lithia, which a few days earlier added two dealerships in Portland, Oregon. Don't be surprised to see the company pick up some more new stores in the near future.

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