3. Lithia Motors, Inc. (NYSE:LAD)
Number of Hedge Fund Holders: 45
P/E Ratio as of January 19: 5.06
Lithia Motors, Inc. (NYSE:LAD) was founded in 1946 and is headquartered in Medford, Oregon. It is an automotive retailer in the United States that operates through three segments – Domestic, Import, and Luxury. On December 6, Lithia Motors, Inc. (NYSE:LAD) announced that it has expanded into Colorado with purchase of its first Ferrari store. The acquisition is expected to generate $75 million in annualized revenue, bringing Lithia Motors, Inc. (NYSE:LAD)’s total expected annualized revenue in 2022 to more than $3.3 billion. Acquisitions are a primary part of the company’s 2025 Plan to achieve $50 billion in revenue and $55 to $60 in earnings per share.
On January 13, Wells Fargo analyst Colin Langan downgraded Lithia Motors, Inc. (NYSE:LAD) to Equal Weight from Overweight with a price target of $233, up from $212. The analyst expects gross margins to begin to fall back to their long-term averages from current record highs, and is highly concerned that gross margins will also normalize in both used and F&I segments, which also are at peak highs.
According to Insider Monkey’s data, 45 hedge funds were bullish on Lithia Motors, Inc. (NYSE:LAD) at the end of Q3 2022, compared to 40 funds in the earlier quarter. David Abrams’ Abrams Capital Management is the largest stakeholder of the company, with 2.35 million shares worth $504.4 million.
Here is what Oakmark Select Fund has to say about Lithia Motors, Inc. (NYSE:LAD) in its Q1 2022 investor letter:
“As is typical during periods of significant volatility, we added a new name to the portfolio. Lithia Motors (NYSE:LAD) is the largest franchised auto dealer group in the United States. The company has a long history of creating shareholder value through best-in-class operations and consistent acquisitions of smaller dealers at attractive returns. There is a long runway for management to continue creating value through such acquisitions. Management believes this will drive earnings per share to more than $50 by 2025, even as car prices return to pre-pandemic levels. Meanwhile, Lithia has a significant opportunity to further accelerate growth through Driveway, its online auto retailing platform. We believe Lithia’s existing nationwide infrastructure provides Driveway with significant competitive advantages in e-commerce, which smaller dealers will struggle to replicate. Driveway is not generating any earnings today, but it could become a major contributor over the next five to seven years. With the stock priced at less than 7x management’s 2025 EPS target and with substantial future growth potential from Driveway, we believe Lithia shares are a bargain today.”
