Lithia Motors, Inc. (LAD)

Lithia Motors, Inc. LAD recently announced the decision to boost its stock repurchase program by $750 million. This brings the auto retailer’s total funds available for repurchase to $885 million.

Robust earnings and better-than-expected free cash flow have enabled the company to engage in this investor-friendly move of returning capital to shareholders through share repurchases, thereby driving shareholders’ confidence.

Meanwhile, Driveway Finance Corporation completed its inaugural issuance of securities backed by its originated auto loan portfolio. For years, Driveway Finance has been the primary lender for Lithia and Lithia-owned dealer groups. This asset-backed securities (ABS) offering has raised $344 million of additional funds to sponsor LAD’s rapid growth and network development.

Planned future ABS issuances will enable the auto retailer to fuel the profit contributed by Driveway Finance in the upcoming years. Driveway Finance originations currently represent approximately 5% of LAD's overall business and are expected to escalate to 15% in the near future. This accelerating income stream will help diversify Lithia’s business model, augment its profitability and enhance consumer loyalty while positioning it well for top- and bottom-line growth.

Lithia is one of the leading automotive retailers of new and used vehicles, and related services in the United States. It offers tailored services complemented through its nationwide network. Lithia’s diversified product mix and multiple streams of income reduce the risk profile of the firm. The company generates income from businesses, including used and new vehicle retail, finance, insurance as well as automotive repair and maintenance. In July 2020, Lithia announced an ambitious five-year plan to yield $50 billion in revenues and $50 in earnings per share, including 200 plus acquisitions.

Of late, the company has been on a buyout binge as it seeks to consolidate auto dealerships into its network profitably. Lithia’s strategic buyouts are helping it to increase its market share and boost its portfolio. A spree of acquisitions brought Lithia's total expected annualized revenues acquired to $6.5 billion so far this year, keeping it well ahead of schedule laid out in the five-year plan. In fact, in August, the company made its first international acquisition via a partnership with Canada-based Pfaff Automotive.

Lithia put up a stellar show in third-quarter 2021 and reported adjusted earnings of $11.21 per share, up 63% from the prior-year quarter’s $6.89 per share. Total revenues also surged 70.4% year over year to $6,169.8 million. With this, Lithia claims to have reported the highest quarterly earnings and revenues in its history.

Lithia currently carries a Zacks Rank #3 (Hold). You can see

the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Auto Companies to Tap On

Top-ranked stocks in the auto space include

Goodyear Tire GT,

LCI Industries LCII and

Harley-Davidson HOG, all of which flaunt a Zacks Rank of 1.

Goodyear has an expected earnings growth rate of 196.86% for the current year. The Zacks Consensus Estimate for its current-year earnings has been revised upward by 42 cents over the last 30 days.

 

Goodyear beat the Zacks Consensus Estimate for earnings in the last four quarters. GT has a trailing four-quarter earnings surprise of 228.45%, on average. Its shares have rallied 87.6% over the past year.

LCI Industries has an expected earnings growth rate of 67.95% for the current year. The Zacks Consensus Estimate for its current-year earnings has been revised upward by 45 cents over the last 30 days.

LCI Industries beat the Zacks Consensus Estimate for earnings in three of the last four quarters while missing once. LCII has a trailing four-quarter earnings surprise of 10.09%, on average. Its shares have rallied 17.5% over the past year.

Harley-Davidson has an expected earnings growth rate of 31.75% for the current quarter. The Zacks Consensus Estimate for its current-year earnings has been revised upward by 14 cents over the last 30 days. 

Harley-Davidson beat the Zacks Consensus Estimate for earnings in three of the last four quarters while missing once. HOG has a trailing four-quarter negative earnings surprise of 138.45%, on average. Its shares have dropped around 9.6% over the past year.

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