On Wednesday, Benchmark initiated coverage on Lithia Motors (NYSE:LAD) shares with a Buy rating, setting a price target of $400. Trading at $344.83, the stock has shown strong momentum with a 39% gain over the past six months.
The firm's analysis highlights Lithia Motors' position in the auto dealership industry, noting the company's successful mergers and acquisitions strategy as a key driver for growth. According to InvestingPro data, analyst targets range from $330 to $450, reflecting varied opinions on the company's potential.
According to Benchmark, large dealerships like Lithia Motors benefit from favorable competitive dynamics, which include franchise laws and scale advantages that protect them from competition.
As a prominent player in the Specialty Retail industry with $34.69 billion in revenue, Lithia has demonstrated its market strength. This is particularly significant in an industry that remains highly fragmented and ripe for consolidation. Lithia Motors, as per the analysis, has been the most aggressive and successful in executing this strategy.
The analyst at Benchmark believes that Lithia Motors is well-positioned to grow due to several factors. These include a resilient auto market, strong performance in the used vehicle segment, growth in parts and services, operational efficiency, and a robust online platform. The company's recent investments in digital capabilities are also expected to provide additional upside.
Furthermore, Lithia Motors' captive finance arm is highlighted as a source of profitable diversification and differentiation that is challenging for competitors to replicate. The price target of $400 is based on a 10x and 12x EV/EBITDA and P/E multiple, respectively, applied to the firm's fiscal year 2025 and 2026 estimates, with an average of the two multiples serving as the basis for the target.
Currently trading at an EV/EBITDA of 12.6x and P/E of 11.66x, InvestingPro analysis suggests the stock is trading above its Fair Value. For deeper insights into Lithia Motors' valuation and 12+ additional ProTips, access the comprehensive Pro Research Report available on InvestingPro.
In other recent news, Lithia Motors showcased robust third-quarter performance, reporting an 11% year-over-year increase in revenue, reaching a record $9.2 billion. The adjusted earnings per share (EPS) stood at $8.21, exceeding both the estimated $8.17 and the consensus of $7.59.
This strong performance has led to Jefferies and Stephens raising their price targets for Lithia Motors to $400 and $405, respectively, while maintaining their positive ratings on the company's shares.
Lithia Motors also achieved significant cost savings, reaching $200 million in annualized savings and reducing its adjusted SG&A to 66% of gross profit. In addition, the company expanded its portfolio with new acquisitions, including three stores from Duval Motor Company, expected to contribute nearly $6 billion in annual revenues.
Despite challenges in the subprime segment, Lithia Motors' prime portfolio displayed resilience with slight increases in delinquencies but well-managed provisions. Analysts from Jefferies and Stephens maintain a positive outlook on the company, citing potential supportive demand environment in 2025 and confidence in the company's financial performance and future prospects. These are among the recent developments in the company.
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