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1. Company Snapshot

1.a. Company Description

Lithia Motors, Inc.operates as an automotive retailer in the United States.The company operates through three segments: Domestic, Import, and Luxury.


It offers new and used vehicles; vehicle financing services; warranties, insurance contracts, and vehicle and theft protection services; and automotive repair and maintenance services, as well as sells vehicle body and parts under the Driveway and GreenCars brand names.As of February 18, 2022, the company operated through 278 stores.It also offers its products online through 300 websites.


Lithia Motors, Inc.was founded in 1946 and is headquartered in Medford, Oregon.

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1.b. Last Insights on LAD

Negative drivers behind Lithia Motors' recent performance include a disappointing Q4 earnings release, which missed Wall Street estimates. The company's quarterly earnings of $6.74 per share fell short of the Zacks Consensus Estimate of $8.09 per share. Additionally, the acquisition of Toyota of Gallatin in Gallatin, Tenn. may not have had a significant impact on the company's short-term performance. Furthermore, institutional investors such as Advent International L.P. have reduced their stakes in the company, indicating a lack of confidence in its current trajectory.

1.c. Company Highlights

2. Strong Quarterly Performance with Record Revenue

The company reported a robust quarterly performance, with revenue reaching $9,200,000,000, setting a new record for full-year revenue of $37,600,000,000, up 4% from 2024. Adjusted diluted EPS was $6.74 for the quarter, with full-year adjusted EPS of $33.46, up 16% from 2024. The used retail performance has returned to historical industry-leading mid-single-digit growth levels, with used revenue up 6.1% driven by 4.7% unit growth. The company's value auto platform continued its strong momentum with 10.9% unit growth, demonstrating growth at the most affordable price points.

Publication Date: Feb -12

📋 Highlights
  • Record Revenue Growth:: Quarterly revenue reached $9.2B, with full-year revenue hitting $37.6B, a 4% increase from 2024.
  • DFC Profit Surge:: Driveway Finance Corporation (DFC) reported a $19M YoY pretax income increase and 16.7% penetration rate in December.
  • Used Vehicle Momentum:: Used retail revenue grew 6.1% YoY, driven by 4.7% unit growth and a $1,575 GPU decrease as market share expanded.
  • Share Repurchases Accelerated:: Retired 3.8% of shares in Q4 and 11.4% in 2025, leveraging undervalued stock to enhance shareholder returns.
  • SG&A Efficiency Challenges:: SG&A expenses rose to 68.8% of gross profit in Q4 (up 130 bps YoY), though management expects cost adjustments to stabilize trends.

Segment Performance

The Driveway Finance Corporation (DFC) saw a $19,000,000 year-over-year increase in pretax income and delivered a 16.7% penetration rate in December. F&I per unit was $1,874, up $10, demonstrating the resilience of this high-margin business. The UK business reported a 53% increase in adjusted pretax income for the full year compared to 2024, providing a nice tailwind.

Growth Prospects and Strategy

The company is focusing on maximizing shareholder return through disciplined deployment, with a focus on repurchasing shares at attractive valuations. The company expects to continue growing its aftersales profitability, accelerating used vehicle growth, expanding DFC penetration, and driving operational improvements in its sales departments. The company's capital allocation philosophy will remain disciplined and opportunistic in 2026, allocating free cash flows to repurchases when relative valuations are attractive and investing in accretive acquisitions at the right price.

Valuation and Estimates

The company's current P/E Ratio is 10.28, and the ROE is 12.08%. Analysts estimate next year's revenue growth at 5.1%. The actual EPS came out at $6.74, relative to estimates at $8.09. The company's shares are trading at a deeply discounted valuation, with the management accelerating repurchases, retiring 3.8% of its shares in the quarter and 11.4% of its shares in 2025.

Outlook and Expectations

The company expects 20% plus CAGR growth in financing income from DFC and is confident in reaching a 20% penetration rate. The company is also working to reeducate store leaders to inflate pricing on underpriced used cars, which is expected to lead to a lift in pricing in 2026. The company's aftersales parts and service business is driven by customer relationships and initiatives such as the My Driveway portal, with a mid-single-digit growth number considered realistic for the near term.

3. NewsRoom

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Lithia Motors Sees Unusually High Options Volume (NYSE:LAD)

Mar -31

Source: defenseworld.net

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Lithia Motors: An Undervalued Stock With OEM-Backed Flywheel Business Model

Mar -30

Source: seekingalpha.com

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Rocket Pharmaceuticals Announces FDA Approval of KRESLADI™ for Pediatric Patients with Severe Leukocyte Adhesion Deficiency-I (LAD-I)

Mar -27

Source: businesswire.com

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Lithia Motors, Inc. (NYSE:LAD) Given Consensus Recommendation of “Moderate Buy” by Brokerages

Mar -27

Source: defenseworld.net

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Lithia & Driveway Donates Over $500,000 to Automotive Programs Nationwide to Support the Next Generation of Automotive Technicians

Mar -10

Source: globenewswire.com

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Lithia & Driveway Diversifies Portfolio with Two Strategic Acquisitions

Mar -03

Source: globenewswire.com

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Lithia Motors, Inc. (NYSE:LAD) Given Average Rating of “Moderate Buy” by Analysts

Mar -02

Source: defenseworld.net

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1,734 Shares in Lithia Motors, Inc. $LAD Purchased by Jupiter Asset Management Ltd.

Feb -23

Source: defenseworld.net

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (6.00%)

6. Segments

Vehicle

Expected Growth: 6.0%

Lithia Motors' 6.0% growth is driven by increasing demand for new and used vehicles, expansion into high-growth markets, and strategic acquisitions. Additionally, the company's focus on digital retailing, improved customer experience, and cost savings initiatives contribute to its growth momentum.

7. Detailed Products

New Vehicle Sales

Lithia Motors, Inc. sells new vehicles from various manufacturers, including Chrysler, Dodge, Jeep, Ram, Fiat, and Alfa Romeo.

Used Vehicle Sales

The company sells used vehicles, including certified pre-owned vehicles, from various manufacturers.

Parts and Service

Lithia Motors, Inc. offers parts and service for vehicles, including maintenance, repairs, and accessories.

Body and Paint Repair

The company provides body and paint repair services for vehicles.

Financing and Insurance

Lithia Motors, Inc. offers financing and insurance options for vehicle purchases.

Vehicle Protection Products

The company offers vehicle protection products, such as extended warranties and maintenance plans.

8. Lithia Motors, Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Lithia Motors, Inc. faces moderate threat from substitutes, as customers have limited alternatives to purchasing new vehicles from dealerships. However, the rise of ride-hailing services and car-sharing platforms poses a moderate threat to the company's business.

Bargaining Power Of Customers

Lithia Motors, Inc. has a low bargaining power of customers, as individual customers have limited negotiating power when purchasing vehicles. However, the company's large customer base and diverse product offerings mitigate this risk.

Bargaining Power Of Suppliers

Lithia Motors, Inc. faces moderate bargaining power from suppliers, as the company relies on a few large automotive manufacturers for its inventory. However, the company's scale and diversification of suppliers mitigate this risk.

Threat Of New Entrants

Lithia Motors, Inc. faces a low threat from new entrants, as the automotive retail industry has high barriers to entry, including significant capital requirements and regulatory hurdles.

Intensity Of Rivalry

Lithia Motors, Inc. operates in a highly competitive industry, with intense rivalry among dealerships and online platforms. The company must continually invest in marketing and customer service to maintain its market share.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 63.20%
Debt Cost 4.39%
Equity Weight 36.80%
Equity Cost 11.88%
WACC 7.15%
Leverage 171.75%

11. Quality Control: Lithia Motors, Inc. passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Value: 6.8

Growth: 7.0

Quality: 4.6

Yield: 5.0

Momentum: 5.0

Volatility: 8.3

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Group 1 Automotive

A-Score: 5.0/10

Value: 7.0

Growth: 7.8

Quality: 3.5

Yield: 0.0

Momentum: 5.0

Volatility: 6.7

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Growth: 7.3

Quality: 3.7

Yield: 0.0

Momentum: 3.5

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Lithia Motors

A-Score: 4.4/10

Value: 6.3

Growth: 6.7

Quality: 3.4

Yield: 1.0

Momentum: 3.0

Volatility: 6.0

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ACV Auctions

A-Score: 3.2/10

Value: 6.8

Growth: 5.4

Quality: 4.2

Yield: 0.0

Momentum: 0.5

Volatility: 2.3

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

251.82$

Current Price

251.82$

Potential

-0.00%

Expected Cash-Flows