On Thursday, Jefferies maintained a Buy rating on Lithia Motors (NYSE:LAD) but lowered the price target to $325 from the previous $350. The adjustment follows Lithia Motors' first-quarter adjusted earnings per share (EPS) of $6.11, which fell short of the consensus estimate of $7.85.
The decrease in earnings was attributed to rising floorplan expenses and a significant drop in new gross profits per unit (GPUs), which decreased by 29.7% year-over-year to $3,448. Despite these challenges, the company saw a 3.6% year-over-year increase in new unit sales.
The report from Jefferies suggests that high-interest rates are likely to continue posing challenges to affordability and floorplan costs in the near term. Still, the firm anticipates that increasing new vehicle volumes and the stabilization of used GPUs will act as positive factors for Lithia Motors in 2024. Moreover, there is an expectation for growth in the used vehicle segment, as customers may lean towards more affordable options in the future.
The analyst pointed out that the climbing floorplan expenses and the moderating new GPUs significantly impacted the company's financial performance. Despite these headwinds, the continued recovery in new unit sales, which rose slightly, provided some balance to the earnings report.
Looking ahead, Jefferies forecasts that while elevated interest rates may continue to affect the automotive industry, Lithia Motors is expected to benefit from a shift in consumer behavior. The firm suggests that as customers seek affordability, there could be an increased demand for used vehicles, which may lead to an upside for the company's used unit sales.
In summary, Jefferies has revised Lithia Motors' price target downward in response to a mixed first-quarter performance, with specific challenges in floorplan expenses and new GPUs. Nonetheless, the firm maintains a positive outlook on the stock, expecting that the company will navigate through the current headwinds and capitalize on potential opportunities in the used vehicle market.
InvestingPro Insights
In light of the recent analysis by Jefferies on Lithia Motors, InvestingPro data provides additional context that may be valuable for investors. With a market capitalization of $6.84 billion and a robust revenue growth of 14.63% over the last twelve months as of Q1 2024, Lithia Motors demonstrates significant scale and growth potential in the Specialty Retail industry.
The company's P/E ratio stands at 7.1, indicating that the stock could be trading at an attractive earnings multiple relative to its earnings power.
While challenges such as rising floorplan expenses have been highlighted, InvestingPro Tips suggest that Lithia Motors has a history of raising its dividend for 10 consecutive years, signaling a commitment to returning value to shareholders. Additionally, the stock's RSI indicates it is in oversold territory, which might attract investors looking for potential bargains.
For those seeking a deeper dive into Lithia Motors' financial health and stock performance, InvestingPro offers a wealth of additional tips – there are 13 more tips available for LAD, which can be accessed on InvestingPro's platform. Interested investors can take advantage of the exclusive promotional offer using coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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