Back to top

Image: Bigstock

Can Lithia (LAD) Maintain its Earnings Beat Streak in Q3?

Read MoreHide Full Article

Lithia Motors (LAD - Free Report) is slated to release third-quarter 2021 results on Oct 20, before the opening bell. The Zacks Consensus Estimate for the to-be-reported quarter’s earnings and revenues is pegged at $9.72 per share and $6.09 billion, respectively.

The auto retailer came up with better-than-expected results in the last reported quarter on higher-than-anticipated sales across all segments. In fact, Lithia surpassed earnings estimates in each of the trailing four quarters, with the average being 28.3%. This is depicted in the graph below:

Lithia Motors, Inc. Price and EPS Surprise

Lithia Motors, Inc. Price and EPS Surprise

Lithia Motors, Inc. price-eps-surprise | Lithia Motors, Inc. Quote

Trend in Estimate Revisions

The Zacks Consensus Estimate for third-quarter earnings per share has moved 18 cents north in the past seven days. The metric indicates a significant year-over-year improvement of 41%. Further, the Zacks Consensus Estimate for quarterly revenues suggests year-over-year growth of 68.1%.

Things to Note

Courtesy of economic recovery from the pandemic lows and preference for personal mobility, demand for vehicles has been on the rise, which is likely to have aided sales of Lithia. Encouragingly, the auto retailer is expected to post a year-over-year increase in third-quarter revenues across all its units. We expect Lithia’s Driveway e-commerce program to have significantly buoyed the firm’s Q3 revenues. In particular, higher average selling price for new and used cars is likely to have aided revenues.

The Zacks Consensus Estimate for revenues in the used vehicle business is $2,124 million, indicating an increase from $1,192 million recorded in the year-ago period. The consensus mark for revenues from the new vehicle segment stands at $3,008 million, suggesting 59.7% year-over-year growth. The Zacks Consensus Estimate for revenues from Finance & Insurance and Fleet & Other is pegged at $273 million and $42.65 million, respectively, implying an improvement from the corresponding quarter of 2020.

Meanwhile, rising commodity costs, tough labor markets and logistical inefficiencies amid the global chip crunch are likely to have played spoilsports. Consequently, gross profit is anticipated to have declined from the year-ago period. The consensus mark for gross margins in the used vehicle retail segment is pegged at 12.7%, pointing to a decline from 13.2% in third-quarter 2020.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Lithia this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -1.28%. This is because the Most Accurate Estimate for earnings per share is pegged 12 cents lower than the Zacks Consensus Estimate.

Zacks Rank: Lithia currently flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

Here are some companies from the auto space, which according to our model have the right combination of elements to come up with an earnings beat this time around.

Tesla (TSLA - Free Report) has an Earnings ESP of +15.68% and a Zacks Rank #1. The stock is set to report third-quarter 2021 earnings on Oct 20.

AutoNation (AN - Free Report) has an Earnings ESP of +2.45% and a Zacks Rank #1. The stock is set to report third-quarter 2021 earnings on Oct 21.

Group 1 Automotive (GPI - Free Report) has an Earnings ESP of +2.78% and a Zacks Rank #2. The stock is set to report third-quarter 2021 earnings on Oct 28.

Published in