On Monday, Evercore ISI adjusted its outlook on Lithia Motors (NYSE:LAD), a leading automotive dealership group. The firm reduced the price target to $360 from the previous $400 while sustaining an Outperform rating on the stock.
The revision reflects a valuation pegged at approximately 11 times the estimated earnings per share (EPS) of around $33, which includes a one-point multiple premium compared to AutoNation (NYSE:NYSE:AN) due to Lithia Motors' progress in omni-channel and captive financing initiatives.
The price target adjustment is partly a consequence of the earnings drag from Pendragon GPUs and increased selling, general, and administrative (SG&A) expenses. Despite these challenges, Evercore ISI continues to favor the broader dealer space, considering it as defensive cyclicals. The firm generally prefers automotive dealers over original equipment manufacturers (OEMs) for investment in the current economic cycle.
In comparison to Lithia Motors, Evercore ISI views AutoNation as the "cleanest Long" investment opportunity within the dealer space, citing the company’s repo story, targeted acquisitions, and lower volatility. AutoNation is seen to have a base case upside of about 15-20% with a price target of $200.
Additionally, Evercore ISI highlighted upcoming events that may offer further insights into the automotive dealer sector. These include an AutoNation Non-Deal Roadshow (NDR) in Toronto with the company's CFO and Investor Relations team on Wednesday and a webinar with PlacerAI scheduled for June 10th, which will provide proprietary data on auto dealers and review findings from the AutoNation NDR.
InvestingPro Insights
As Evercore ISI revises its price target for Lithia Motors (NYSE:LAD), investors may consider the latest metrics and analysis provided by InvestingPro to gauge the company's financial health and market position. With a market capitalization of $6.94 billion and a P/E ratio of 7.42, Lithia Motors appears to trade at a low earnings multiple, which could indicate a potential value opportunity for investors. The company's revenue growth over the last twelve months as of Q1 2024 stands at 14.67%, showcasing its ability to expand amidst a challenging economic landscape.
InvestingPro Tips highlight that Lithia Motors operates with a significant debt burden, yet it has raised its dividend for 10 consecutive years and maintained dividend payments for 15 consecutive years, reflecting a commitment to shareholder returns. Moreover, the company is a prominent player in the Specialty Retail industry, and analysts predict it will remain profitable this year. These insights suggest that Lithia Motors has a balance of challenges and strengths that investors should consider.
For those seeking a deeper dive into Lithia Motors' financials and future prospects, InvestingPro offers additional tips that could inform investment decisions. By using the coupon code PRONEWS24, investors can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to a comprehensive suite of tools and insights. Currently, there are 11 additional InvestingPro Tips available for Lithia Motors, which could provide further clarity on the company's potential performance and investment quality.
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