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Lithia Motors Could Shift Into Gear Soon

Philip Saglimbeni
January 31, 2014

Although the major indices have pulled back a bit in recent weeks, many companies' stocks are still close to their all-time high levels. It is at times like these that I find it beneficial to study particular companies that have not fared as well since they may be ripe for a turnaround.

One company that stands out to me is Lithia Motors (NYSE: LAD), an automotive franchisee and retailer of new and used vehicles as well as replacement parts in the United States. Shares of the company are down approximately 20% in 2014 alone. With earnings set to be released next month, the time seems right to consider Lithia Motors for long-term growth.

Reliable business
Perhaps the most intriguing aspect of Lithia Motors' business is that it is relatively utilitarian in nature compared to the businesses of the major vehicle manufacturers like Ford and General Motors. The company's business of selling new and used cars and parts relies heavily on the consumer's willingness to save money on large automobile purchases.

Additionally, Lithia Motors carries significantly less headline risk compared to the major car manufacturers, as the company does not have to contend with problems like debilitating manufacturing issues. As such, major automotive retailers like Lithia Motors remain an interesting way for investors to capitalize on strong domestic cars sales without many of the typical industry risks.

The proof is in Lithia Motors' strong revenue growth over the last five years. The company has grown revenue in seven years out of the last nine. Only in the challenging 2008-2009 time period did Lithia Motors fail to increase revenue on a year-over-year basis. 

Growth compared to peers
The following is a breakdown of Lithia Motors' projected growth in 2014 compared to that of industry competitors AutoNation (NYSE: AN) and Penske Automotive Group (NYSE: PAG). 



Lithia Motors

Penske Automotive

Revenue Growth 2014




EPS Growth 2014




Lithia Motors' strong track record of revenue growth is expected to continue into 2014, as the company is projected to lead all listed competitors in sales growth going forward by a significant margin. However, the company's projected earnings growth of 12.8% in 2014, although impressive, lags behind the EPS growth rates of both AutoNation and Penske Automotive.

What Lithia Motors may lack in EPS growth compared to competitors, the company now makes up for in valuation. Lithia Motors is the cheapest company on a trailing twelve month and future twelve month basis. The company's current P/E of 15.07 and future P/E of 12.81 are cheaper than AutoNation's respective P/E ratios of 16.56 and 14.02 and Penske Automotive's 16.27 and 13.24. 

Why the drop?
Since we now know that Lithia Motors is still projected to grow at very solid rates in 2014 and curren