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Bull of the Day: Lithia Motors (LAD)

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Lithia Motors, Inc. (LAD - Free Report) is expecting to be the beneficiary of strong auto sales during the coronavirus pandemic. This Zacks Rank #1 (Strong Buy) is still paying its dividend when others have been suspending it.

Lithia Motors is one of the largest auto retailers in the United States. It sells new and used autos from both domestic and international auto manufacturers. Lithia also offers service and parts.

A First Quarter Beat

On Apr 22, Lithia reported its first quarter results and beat the Zacks Consensus by $0.03. Earnings were $2.01 versus the Zacks Consensus of $1.98.

The first quarter was only impacted by COVID-19 for the month of March. In January and February, sales were positive for same store new, used, F&I and service, body and part sales.

But for the full quarter, same store new vehicle sales fell 10.6%, while used vehicle still rose 2.7%.

Earnings Estimates on the Rise

Even though the company hasn't issued a business update, 2 estimates were raised for 2020 and 2021 in the last week as auto sales remain hot.

The 2020 Zacks Consensus Estimate has jumped to $9.34 from $8.47 in the last week. This is still a 20.6% earnings decline compared to 2019 when the company made $11.76 but it's moving in the right way, which is up.

The upside revisions indicate that the analysts had been too pessimistic for the second quarter.

2021 is also looking up, with the Zacks Consensus rising to $12.42, which is earnings growth of 33% over 2020.

Balance Sheet at the End of Q1

Lithia finished the first quarter with over $550 million in cash and availability on its revolving lines of credit.

It's $2.8 billion syndicated credit facility was renewed in December for five years with a maturity date of 2025. It has no significant debt maturities until that time.

Still Paying the Dividend

In April, Lithia announced it was suspending its share repurchase program.

But it kept its dividend which is yielding 0.75%.

Many companies also suspended their dividend so it's a sign of strength that they are still paying it.

Shares Soar as Auto Sales Surge

JPMorgan Chase offered data in its second quarter earnings presentation which showed a record number of car loans in the second quarter as consumers rush to buy autos so they can avoid public transportation.

Lithia shares have been hot for the last 3 months, with the shares gaining 98% during that time.

Yet, they're not that expensive, with a forward P/E of just 18.1.

It's competitors are also all Zacks Rank #1 (Strong Buy) stocks including Asbury Automotive (ABG - Free Report) , Group 1 Automotive (GPI - Free Report) , Penske Automotive Group (PAG - Free Report) and Sonic Automotive (SAH - Free Report) as the auto retailers remain one of the strongest industries within the retail sector.

For investors looking for rising earnings estimates, Lithia Motors is one to keep on the short list.

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