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Bull of the Day: Lithia Motors (LAD)

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Lithia Motors, Inc. (LAD - Free Report) keeps reporting record earnings even as auto sales slow. How does this Zacks Rank #1 (Strong Buy) keep doing it?

Lithia is one of the largest auto retailers in the United States with 167 dealerships in 18 states. It offers 30 brands of new and used autos along service and body parts.

Adding to Its Stores

On Aug 8, Lithia announced it acquired the Downtown Los Angeles Auto Group, which operated Audi, Mercedes-Benz, Nissan, Porsche, Toyota, and Volkswagen stores in downtown Los Angeles and a Nissan store in Carson, CA.

This group is expected to generate $1 billion in revenue, and another $0.55 in earnings per share, for Lithia.

Lithia has been slowly adding to its stable of stores across the country.

"This opportunity deploys approximately half of the $300 million raised in our recent senior notes offering," said Bryan DeBoer, President and CEO.

"The remaining funds from the notes offering, our free cash flow and a recently increased syndicated credit facility support our continued growth cadence. Improving performance to realize the full potential of our acquisitions achieves greenfield rates of return," he said.

Raised Full Year Guidance

Due to this large acquisition, and its impact on earnings, Lithia raised its full year 2017 earnings guidance to a range of $8.55 to $8.70 a share.

As a result, the analysts raised estimates as well, with 3 estimates rising for 2017 and 5 moving higher for 2018.

The 2017 Zacks Consensus Estimate jumped to $8.63 from $8.25 in the last 90 days. That's earnings growth of 16.3% compared to 2016 when it made $7.42.

2018's Zacks Consensus Estimate also rose to $9.44 from $8.74, a gain of 9.4%.

27th Record Quarter in a Row

On July 28, Lithia reported its second quarter results. Revenue and earnings per share were the highest in company history and it was the 27th consecutive quarter of record results.

Second quarter revenue rose 16% to $2.5 billion from $2.1 billion in the year ago quarter.

Key same store sales metrics remained positive even as auto sales weaken.

Total same store sales rose 3% even though new vehicle sales increased just 1%. Used vehicle same store sales helped boost the quarter, as those gained 4%.

Service, body and parts same store sales also continue to be robust, rising 7%.

Shares At New 52-Week Highs

While some auto stocks have suffered in 2017, Lithia is not one of them. After some weakness early in the year, shares have now broken out to new 52-week highs.

They're up 14.9% year-to-date.

Lithia shares are still attractively valued, with a forward P/E of just 13.6.

It also pays a dividend, currently yielding 0.9%.

For investors looking for a way to play the auto industry, Lithia is one to keep on the short list.

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