Core Viewpoint - Lithia Motors (LAD) shares have increased by approximately 5.3% since the last earnings report, but this performance is below that of the S&P 500 [1] Group 1: Earnings and Estimates - Recent estimates for Lithia Motors have trended downward, with a consensus estimate shift of -5.47% [2] - The most recent earnings report is crucial for understanding the catalysts affecting the stock [1] Group 2: VGM Scores - Lithia Motors has a strong Growth Score of A, but a low Momentum Score of F, while also receiving an A for value, placing it in the top quintile for this investment strategy [3] - The overall aggregate VGM Score for Lithia Motors is A, which is significant for investors not focused on a single strategy [3] Group 3: Outlook - The downward trend in estimates indicates a broader negative sentiment, with Lithia Motors holding a Zacks Rank of 3 (Hold) [4] - An in-line return is expected from the stock in the upcoming months [4]

Core Viewpoint - Carvana and Lithia Motors represent two distinct strategies in the U.S. auto retail sector, with Carvana focusing on a digital-first model for used vehicles and Lithia combining new and used vehicle sales with a physical dealership network [1][2] Group 1: Carvana - Carvana is the second-largest used car retailer in the U.S., known for its automated car vending machines and a fully digital sales model [3] - The company has exceeded earnings expectations for four consecutive quarters, selling over 100,000 cars each quarter, with a 45.7% year-over-year increase in retail units sold in Q1 2025 [4] - Carvana achieved a record adjusted EBITDA of approximately $488 million, with an EBITDA margin of 11.5%, significantly higher than the industry average [5] - The company is positioned to benefit from rising new car prices, as its used-car model may become more attractive to consumers [6] - However, Carvana's financial health is concerning, with $5.26 billion in long-term debt and a debt-to-capital ratio of 0.75, which is well above the sector average [7] - Long-term goals include selling 3 million retail units annually with an adjusted EBITDA margin of 13.5% within 5 to 10 years, indicating confidence in scaling its operations [8] Group 2: Lithia Motors - Lithia Motors is one of the largest auto retailers in the U.S., with a diversified business model that includes new and used vehicle sales, aftersales services, and financing, which helps mitigate risks [9] - The aftersales segment contributes about 40% of gross profit and is expected to benefit from consumers holding onto vehicles longer due to tariff impacts [9] - However, Lithia faces tariff risks, as new vehicle sales account for about half of its revenue, leading to potential margin pressure due to rising costs [10] - Lithia has aggressively expanded, adding nearly $10 billion in annualized revenues through acquisitions in 2023 and 2024, and is enhancing its digital platforms [11] - The company has strong cash flows, with a 25% annualized cash flow growth, and has recently increased its dividend by 4% [12] - Lithia's long-term debt stands at $5.9 billion, with a debt-to-capital ratio of 55%, which could limit future investments [13] Group 3: Price Performance and Valuation - Year-to-date, Carvana shares have increased by approximately 32%, while Lithia's stock has decreased by 14.5% [16] - Carvana's forward sales multiple is 2.96X, significantly above its median of 1.60X, while Lithia's forward sales multiple is 0.2X, slightly below its median of 0.22X [17] - The Zacks Consensus Estimate for Carvana's 2025 sales and EPS indicates year-over-year growth of 230% and 166%, respectively, while Lithia's estimates imply increases of 7.7% and 12.8% [21][22] Conclusion - Carvana appears better positioned for future growth due to its digital-first model and strong sales momentum, while Lithia's diversification offers stability but faces challenges from tariffs and high debt [24][25]

Investment Rating - The report assigns an "Overweight" (OW) rating to General Motors (GM) and Ford, while Tesla and Rivian are rated "Underweight" (UW) [6][7]. Core Insights - The automotive industry is experiencing varied performance metrics across different companies, with GM and Ford showing potential upside in their stock prices, while Tesla and Rivian face significant downside risks [6][7]. - The report highlights the importance of valuation metrics such as EV/EBITDA, P/E ratios, and sales growth projections for assessing investment opportunities within the automotive sector [6][22]. Global Auto OEMs Investment Comparables - General Motors (GM) has a current price of $44.57 with a market cap of $43.067 billion and a target price of $53.00, indicating a 19% upside potential [6]. - Ford (F) is priced at $9.63 with a market cap of $38.294 billion and a target price of $11.00, representing a 14% upside [6]. - Ferrari (RACE) is valued at $439.97 with a target price of $460.00, showing a 5% upside [6]. - Tesla (TSLA) is currently priced at $241.37 with a target price of $120.00, indicating a -50% downside [6]. - Rivian (RIVN) has a price of $11.60 with a target price of $11.00, reflecting a -5% downside [6]. Global Auto Parts Suppliers Valuation Metrics - The average EV/EBITDA for US auto parts suppliers is projected at 1.8x for 2024, with a corresponding EBITDA margin of 12% [22]. - Aptiv (APTV) is rated "Overweight" with a current price of $51.71 and a target price of $102, indicating a 97% upside [22]. - Borg Warner (BWA) is rated "Overweight" with a price of $26.45 and a target price of $46, representing a 74% upside [22]. - Lear Corp (LEA) is rated "Overweight" with a price of $79.42 and a target price of $140, indicating a 76% upside [22]. Performance Metrics - The report indicates that the average revenue CAGR for US auto parts suppliers is projected to be 2% from 2023 to 2025 [74]. - The EBITDA margin for US auto parts suppliers is expected to be around 12% in 2025, with some companies showing higher margins [74][83]. - The report also highlights the financial returns of various suppliers, with some companies achieving significant returns on invested capital (ROIC) [54][56].

Core Insights - Lithia Motors (LAD) reported first-quarter 2025 adjusted earnings per share of $7.66, an increase from $6.11 in the prior-year quarter, but below the Zacks Consensus Estimate of $7.77 [1] - The company's revenues reached $9.18 billion, reflecting a year-over-year increase of 7.3%, yet falling short of the Zacks Consensus Estimate of $9.33 billion [1] Segmental Performance - New vehicle retail revenues rose 9.1% year over year to $4.38 billion, aligning with estimates, while new vehicle units sold increased 7.4% to 91,990 units, missing the estimate of 93,776 units [2] - The average selling price (ASP) of new vehicles increased to $47,616 from $46,848, with a gross margin contraction of 110 basis points to 6.3% due to a 10.3% rise in cost of sales to $4.1 billion [2] - Used vehicle retail revenues grew 4.2% year over year to $2.92 billion, surpassing the estimate of $2.76 billion, with units sold rising 4.8% to 107,326 units, exceeding the expectation of 102,615 units [3] - The ASP for used vehicles was $27,198, down 0.5% year over year, while the gross margin remained flat at 6.5% [3] - Revenues from used vehicle wholesale decreased 2% to $331 million, missing the estimate of $531.9 million, while finance and insurance revenues increased 7% to $364.3 million, exceeding the estimate of $348 million [4] - Aftersales revenues were $979.1 million, up 7.3% year over year, surpassing the estimate of $978.7 million, and fleet and others revenues jumped 31.3% to $204.6 million, beating the expectation of $180.9 million [4] Financial Overview - Same-store new vehicle revenues increased 5.7% year over year, while same-store used vehicle retail sales fell 0.9% [5] - Cost of sales rose 7.5% year over year, with SG&A expenses at $952.7 million, and adjusted SG&A as a percentage of gross profit decreased to 68.2% from 69.4% in the prior year [5] - The company increased its quarterly dividend by 4% to 55 cents, with a share repurchase of nearly 403,000 shares at an average price of $326 [6] - As of March 31, 2025, Lithia had cash and equivalents of $430.3 million, up from $402.2 million at the end of 2024, and long-term debt decreased to $5.9 billion from $6.1 billion [7] Market Position - Lithia currently holds a Zacks Rank 3 (Hold), with better-ranked stocks in the auto sector including Standard Motor Products, Inc. (SMP) with a Zacks Rank 1 (Strong Buy), and Advance Auto Parts, Inc. (AAP) and Carvana Co. (CVNA) both at Zacks Rank 2 (Buy) [8]

Revenue and Profitability - Total revenues for 2025 reached $9,178.3 million, a 7.2% increase compared to $8,561.8 million in 2024[106] - New vehicle retail revenues were $4,380.2 million, up 9.1% from $4,014.1 million in 2024[106] - Total gross profit increased to $1,410.4 million, reflecting a 5.6% growth from $1,335.2 million in 2024[106] - Net income grew in 2025 primarily due to increased total gross profit while maintaining SG&A costs under control[105] - Aftersales gross profit increased by 11.9% to $561.5 million, up from $502.0 million in 2024[106] - Total revenues for Q1 2025 reached $8,543.2 million, a 2.5% increase from $8,332.5 million in Q1 2024[1] - Total gross profit for Q1 2025 was $1,333.7 million, reflecting a 1.8% increase from $1,310.0 million in Q1 2024[1] - The company reported net income attributable to Lithia Motors, Inc. of $209.5 million for the three months ended March 31, 2025, compared to $162.6 million in 2024[156] Vehicle Sales - The company sold 91,990 new vehicles, representing a 7.4% increase from 85,683 units sold in 2024[106] - New vehicle retail revenue for Q1 2025 increased by 9.1% to $4,166.6 million compared to Q1 2024, driven by same store growth and acquisition activity[115] - Used vehicle retail revenue for Q1 2025 increased by 4.2% to $2,658.4 million, although same store sales decreased by 0.9% due to lower average selling prices[118] Expenses and Costs - Adjusted SG&A for the three months ended March 31, 2025 was $961.5 million, an increase of $34.9 million or 3.8% compared to $926.6 million in 2024[134] - Operating margin for the three months ended March 31, 2025 was 4.4%, up from 4.0% in 2024, reflecting a 40 basis points increase due to a 5.6% rise in gross profit[144] - Depreciation and amortization increased to $63.9 million in the three months ended March 31, 2025, a 10.6% increase from $57.8 million in 2024, driven by acquisition activity[142] - Floor plan interest expense decreased by $3.6 million to $57.1 million in the three months ended March 31, 2025, a decline of 5.9% compared to $60.7 million in 2024[140] - Total other interest expense increased by $1.9 million to $65.5 million in the three months ended March 31, 2025, a 3.0% rise compared to $63.6 million in 2024[146] Cash Flow and Liquidity - As of March 31, 2025, available liquidity was approximately $1.4 billion, including $234.4 million in unrestricted cash[102] - Net cash provided by operating activities for Q1 2025 was $322.1 million, a $29.7 million increase compared to $292.4 million in Q1 2024[161] - Net cash used in investing activities decreased significantly to $117.1 million in Q1 2025 from $1,265.9 million in Q1 2024, reflecting a change of $1,148.8 million[163] - Cash paid for acquisitions, net of cash acquired, was $84.5 million in Q1 2025, down from $1,074.4 million in Q1 2024, a decrease of $989.9 million[164] - Total current available funds increased to $1,394.6 million as of March 31, 2025, a 3.0% increase from $1,353.8 million at December 31, 2024[160] Capital Expenditures and Shareholder Returns - Capital expenditures for the first three months of 2025 amounted to $68.7 million, with $143.4 million allocated for share repurchases[102] - The company plans to allocate 35% to 45% of free cash flow to acquisitions, 25% to capital expenditures, and 30% to shareholder returns through dividends and share repurchases[157] - The company repurchased 439,798 shares of common stock at an average price of $329.03, with $687.3 million remaining available for repurchases as of March 31, 2025[175] - Dividends paid in March 2025 amounted to $13.9 million, with a dividend per share of $0.53[176] Financing and Interest Rates - Financing operations recorded income of $12.5 million in Q1 2025, a significant improvement from a loss of $1.7 million in Q1 2024[129] - The total average managed finance receivables increased to $4,062.1 million in Q1 2025 from $3,436.6 million in Q1 2024[127] - The weighted average contract rate on loans decreased to 9.1% in Q1 2025 from 10.2% in Q1 2024, reflecting competitive adjustments following Federal Reserve rate cuts[130] Legal Proceedings - The company is involved in numerous legal proceedings as part of its normal business operations, but does not expect these to materially affect its financial condition or cash flows[188] Acquisitions - The company achieved an average return of over 25% on acquisitions by the third year of ownership, exceeding the target of 15%[99] - The company acquired 2 locations in Q1 2025, compared to 139 locations in Q1 2024[173]

Group 1 - Lithia Motors Inc. reported first-quarter FY25 sales growth of 7.2% year-on-year to $9.18 billion, missing the analyst consensus estimate of $9.26 billion [1] - New vehicle, same-store units grew by 3.6%, with new vehicle retail revenues increasing by 9.1% year-on-year and used vehicle retail revenues climbing by 4.2% [1] - Adjusted EPS of $7.66 missed the consensus estimate of $7.69 [1] Group 2 - President and CEO Bryan DeBoer stated that the company achieved profitable growth year over year in each month of the quarter, growing market share and driving operating efficiencies [2] - Following the earnings announcement, Lithia Motors shares gained 4.7% to trade at $291.30 [2] - Analysts made changes to their price targets, with Wells Fargo lowering the target from $308 to $305 and Goldman Sachs lowering it from $385 to $328 [2]

Business Strategy & Performance - Lithia & Driveway (LAD) aims for 100% national coverage and high profitability, targeting $2 Earnings Per Share (EPS) per $1 billion of revenue[9] - LAD's 10-year Revenue Compound Annual Growth Rate (CAGR) is 16%, and Adjusted EPS CAGR is 16%[9] - LAD's annualized revenue run-rate is greater than ~$37 billion[39] Market & Expansion - LAD's platform provides access to a 70% larger market than traditional franchise auto dealers, addressing a $3 trillion market across industries[19] - LAD aims to obtain 2.5% new vehicle US market share in the mid-term[64] - LAD plans to reach 5%+ of new vehicle US market share in the long-term[64] Driveway Finance Corporation (DFC) - DFC targets a 15-20% penetration rate of retail units sold[52] - DFC's portfolio size is projected to reach $7 billion in 2025 and $17 billion in the mid-term[50] - Finance Operations Income for DFC is projected to be $50 - $60 million in 2025 and $150 - $200 million in the mid-term[50] Capital Allocation - During the first three months of 2025, LAD allocated $146 million to share repurchases at an average price of $329 per share[34]

Financial Data and Key Metrics Changes - The company reported diluted earnings per share of $7.94, a 34.8% increase year-over-year, and adjusted diluted earnings of $7.66, a 25.4% increase, marking the first quarterly year-over-year adjusted earnings increase since Q4 2022 [7][10]. - Total revenues grew to a record $9.2 billion, a 7% increase from Q1 of the previous year [10]. - Adjusted SG&A as a percentage of gross profit was 68.2%, a 120 basis point decline from the prior year [42]. Business Line Data and Key Metrics Changes - New vehicle units increased by 3.6% year-over-year, while total unit sales increased by 1.5% [33]. - After-sales gross profit increased by 7.5%, with warranty work showing a 19.7% year-over-year increase [37][38]. - Financing operations delivered income of $12.5 million compared to a loss of $1.7 million in the same period last year [44]. Market Data and Key Metrics Changes - The company operates within one of the largest and least consolidated industries, with a current market share of just over 1% and a target of reaching 5% [24][17]. - The diversified omnichannel ecosystem spans retail, digital, and fleet channels across North America and the UK, with offerings ranging from new vehicles to twenty-year-old value autos [13]. Company Strategy and Development Direction - The focus for 2025 is on executing the strategy to build customer loyalty and expand market share, with a commitment to achieving $2 in EPS for every $1 billion in revenue [10][20]. - The company aims to maintain a balanced capital allocation strategy, targeting a minimum after-tax return of 15% on acquisitions [21][23]. - The strategy includes optimizing the network by acquiring larger automotive retail stores in profitable regions and leveraging digital channels [24][26]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver sustainable performance and capture market share despite potential tariff impacts [10][12]. - The management noted that the operational success is driven by store leaders' autonomy to adapt quickly to local demand [11][12]. - The company remains focused on disciplined cost management and enhancing efficiencies across the business [41][43]. Other Important Information - The company repurchased $146 million, or nearly 2% of its outstanding shares, at attractive valuations during the first quarter [23]. - The company ended the quarter with a net leverage of 2.5 times, in line with its long-term target [51]. Q&A Session Summary Question: Current tariff environment and its impact - Management noted that over 45% of inventory is not impacted by current tariffs, positioning the company favorably compared to peers [59]. - Inventory levels have decreased significantly, with a drop of almost ten days supply quarter-over-quarter [60]. Question: Communication with factory partners and M&A environment - There has been clear communication from manufacturers regarding pricing stability through the 2025 model year, with no major changes in the M&A environment noted [74]. Question: Expectations for front-end gross profit and market share - Management indicated that the design of the ecosystem allows for a potential upward price inflection rather than downward, with expectations for used vehicle gross profit to grow over time [80][82]. Question: Impact of tariffs on after-sales business - Management believes that most customers will need to repair their cars regardless of tariffs, minimizing the impact on the after-sales business [110][112]. Question: Capital allocation and acquisition targets - The company is targeting $2 billion in acquired revenues for the year, with ongoing evaluations of share repurchases and acquisitions [114].

Financial Data and Key Metrics Changes - The company reported diluted earnings per share of $7.94, a 34.8% year-over-year increase, and adjusted diluted earnings of $7.66, reflecting a 25.4% increase [6][9] - Revenues reached a record $9.2 billion, representing a 7% increase from Q1 of the previous year [9][10] - Adjusted EBITDA for the first quarter was $402.1 million, a 17.1% year-over-year increase [31] Business Line Data and Key Metrics Changes - Total unit sales increased by 1.5% year-over-year, with new vehicle units up 3.6% and used vehicles down slightly by 0.4% [22][23] - Aftersales revenue increased by 2.4%, with gross profit from aftersales up 7.5% [24] - Financing operations reported income of $12.5 million compared to a loss of $1.7 million in the same period last year [29] Market Data and Key Metrics Changes - The company noted a significant improvement in value auto sales, which increased by 38.8% year-over-year [23] - The inventory balance decreased by $163 million, with new vehicle days sales outstanding (DSO) decreasing from 59 days to 43 days [25] Company Strategy and Development Direction - The focus for 2025 is on executing the strategy to build customer loyalty and growth, with an emphasis on operational performance and market share expansion [7][14] - The company aims to achieve $2 in EPS for every $1 billion in revenue, with a disciplined approach to acquisitions and capital allocation [16][18] - The omnichannel strategy is designed to enhance customer engagement and streamline operations across retail, digital, and fleet channels [10][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to adapt to tariff impacts and emphasized the importance of maintaining affordability in their product mix [10][42] - The company is optimistic about the growth potential in the aftersales segment, which is expected to benefit from ongoing demand for repairs and maintenance [70][71] - Management highlighted the importance of disciplined cost management and operational execution to drive profitability [27][28] Other Important Information - The company repurchased $146 million of its outstanding shares in the first quarter, representing nearly 2% of its float [15][31] - The transition of Adam Chamberlain from COO to CEO of Mercedes Benz USA was acknowledged, reflecting the strength of partnerships within the industry [19] Q&A Session Summary Question: Current tariff environment and its impact on demand and GPU - Management noted that over 45% of inventory is not impacted by current tariffs, positioning the company favorably compared to peers [37][38] Question: Communication from factory partners regarding tariffs - Clear communication has been received from manufacturers, with guarantees on holding prices through May for most OEMs [50] Question: Balancing front-end gross profit with market share - The company aims to create transparent experiences for consumers, which may lead to an upward price inflection rather than downward [53] Question: Impact of tariffs on aftersales business margins - Management believes that the need for repairs will sustain demand, minimizing the impact of tariffs on aftersales margins [70][71] Question: Capital allocation and acquisition targets - The company expects to focus on $2 billion in acquired revenue for the year, with ongoing share buybacks [72][73]

Core Insights - The article emphasizes the importance of utilizing Zacks Premium for investors to enhance their stock market strategies and confidence in investing [1][2] Zacks Style Scores - Zacks Style Scores are complementary indicators that rate stocks based on value, growth, and momentum methodologies, helping investors identify stocks likely to outperform the market in the next 30 days [3][4] - Each stock receives a rating from A to F based on its characteristics, with A being the highest score indicating a better chance of outperforming [4] Value Score - The Value Score identifies attractive and discounted stocks using ratios like P/E, PEG, Price/Sales, and Price/Cash Flow, appealing to value investors [4] Growth Score - The Growth Score focuses on a company's financial strength and future outlook, analyzing projected and historical earnings, sales, and cash flow to find stocks with sustainable growth [5] Momentum Score - The Momentum Score helps investors capitalize on price trends by analyzing short-term price changes and earnings estimate revisions [6] VGM Score - The VGM Score combines all three Style Scores, providing a comprehensive indicator for investors who utilize multiple investing strategies [7] Zacks Rank - The Zacks Rank is a proprietary stock-rating model that leverages earnings estimate revisions to assist investors in building successful portfolios [8] - Stocks rated 1 (Strong Buy) have historically produced an average annual return of +25.41% since 1988, significantly outperforming the S&P 500 [9] Stock Example: Lithia Motors - Lithia Motors, Inc. is a leading automotive retailer in the U.S., offering 52 vehicle brands across 459 locations in the U.S., U.K., and Canada [13] - Currently rated 3 (Hold) with a VGM Score of B, it has a Value Style Score of B, supported by a forward P/E ratio of 8.56, making it attractive to value investors [14] - Recent earnings estimates for fiscal 2025 have been revised higher, with the Zacks Consensus Estimate increasing by $0.06 to $34.51 per share, alongside an average earnings surprise of 2% [14]