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Bull of the Day: Lithia (LAD)

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Lithia Motors, Inc. (LAD - Free Report) blew out earnings in the second quarter as auto sales continue to be red hot. This Zacks Rank #1 (Strong Buy) is expected to grow earnings 63% this year.

Lithia Motors, now known as Lithia & Driveway, or LAD, is one of the country's largest auto retailers. It sells new and used cars but also operates an e-commerce site called Driveway, which allows customers to buy or sell a car online.

Massive Beat in the Second Quarter

On July 21, Lithia reported its second quarter results and blew by the Zacks Consensus by $4.56, or 69.5%. Earnings were $11.12 versus the Consensus of $6.56.

It was the 6th earnings beat in a row.

Revenue rose 118% to $6 billion from $2.8 billion last year. But remember, the second quarter was the big pandemic quarter when there were restrictions on retail stores.

New vehicle retail sales were up 130% while used vehicle retail sales jumped 95.7%.

F&I per unit rose 16.4% to $1,854

Service, body and parts revenue also rose 89.1%.

Total vehicle gross profit per unit increased 41.3% to $5,723.

Driveway, the e-commerce site which lets you shop by monthly payment, saw 500 transactions in June, a new milestone, and is on track to meet the company's goal of 15,000 transactions this year.

But even comparing with 2019, which was pre-pandemic, the quarter shined. Same store revenue growth still jumped 20% for new vehicles, 49% for used vehicles, 39% for F&I and 3% for service, body and parts.

Analysts Bullish About 2021

Not surprisingly, given the big beat in the quarter, the analysts rushed to raise full year estimates.

The 2021 Zacks Consensus Estimate rose to $29.73 from $23.57 as 4 estimates were revised higher, and none were cut.

That's earnings growth of 63.4% as the company made $18.19 in 2020.

What about 2022?

Analysts appear to be cautious about growth for next year.

While 4 estimates were revised higher after the earnings report for 2022, the Zacks Consensus is at $29.81, up just 0.3% from 2021.

Shares Soar But Are Still Cheap

Lithia has been a winning stock the last 2 years as shares have soared 181.6% in that time.

But they're still cheap, with a forward P/E of just 12.6.

And with that massive 2021 earnings growth, and low P/E, the company has an attractive PEG ratio of just 0.6.

A PEG ratio under 1.0 usually indicates a company has both growth and value, a rare combination.

Lithia is also shareholder friendly, paying a dividend that yields 0.4%.

It's not the only red hot auto retailer. Competitors Group 1 Automotive (GPI - Free Report) , Sonic Automotive (SAH - Free Report) and Penske Automotive Group (PAG - Free Report) , are all Zacks Rank #1 (Strong Buy) stocks.

But Lithia has its unique Driveway business.

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