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On Wednesday, Citi analysts upgraded Lithia Motors (NYSE:LAD) stock from Neutral to Buy, while also reducing the price target to $375 from $415. The upgrade comes with a positive outlook on the company’s growth ambitions, as Lithia Motors announced plans to reach $75-$100 billion in revenue and earnings between $130-$200 per share by 2030. According to InvestingPro data, the company currently trades at a P/E ratio of 9.93x and is fairly valued based on comprehensive Fair Value analysis. Five analysts have recently revised their earnings estimates upward for the upcoming period. The strategy involves leveraging its existing platform to expand its share in the $3 trillion auto retail and adjacent industries.
Citi’s analysis pointed out that auto dealers like Lithia Motors are less impacted by higher tariffs compared to the rest of the auto sector or other retailers. This is due to the fact that gross profit from selling new vehicles constituted only 22% of Lithia Motors’ gross in 2024, and 25% of their annual revenue comes from operations in the UK, which are not affected by US tariffs.
The firm also highlighted Lithia Motors’ increased profitability and reduced costs. Between 2005-2019, the variable gross profit for selling new and used vehicles averaged $3,500 per unit, but this figure climbed to a peak of $6,300 per unit in 2022, supported by inventory constraints and favorable pricing. InvestingPro analysis reveals a current gross profit margin of 15.41%, with additional metrics and insights available in the comprehensive Pro Research Report, which covers over 1,400 US stocks. While profitability has normalized, it remains approximately 20% higher than past figures. Concurrently, Lithia Motors has successfully lowered its SG&A costs as a percentage of gross from pre-Covid levels to 67.7% in 2024.
Citi anticipates that Dealer Group multiples will revert to historical norms once tariffs are clarified and predicts Lithia Motors will trade in line with its peers. The firm’s estimates are 15% below the street’s expectations. The new $375 price target is derived from the midpoint of Citi’s multiple range, averaging EV/EBITDA and P/E metrics.
In other recent news, Lithia Motors Inc . reported strong financial results for the fourth quarter of 2024, surpassing analyst expectations. The company achieved an adjusted diluted earnings per share (EPS) of $7.79, exceeding the forecasted $7.31, while revenue reached a record $9.2 billion, outpacing the anticipated $8.99 billion. Lithia Motors also announced a significant executive change, as Adam A. Chamberlain, the Executive Vice President and Chief Operating Officer, will leave the company to become the CEO of Mercedes-Benz (OTC:MBGAF) USA, effective June 1, 2025. Following his departure, Lithia Motors’ regional presidents and vice presidents will report directly to CEO Bryan DeBoer. The company expressed confidence in its leadership team to maintain momentum and strategic execution. Additionally, Lithia Motors has reached its $200 million annual cost savings target, further highlighting its operational efficiency. These developments reflect Lithia Motors’ ongoing commitment to growth and its strong position in the automotive retail industry.
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