3. Lithia Motors, Inc. (NYSE:LAD)
Number of Hedge Fund Holders: 39
Lithia Motors, Inc. (NYSE:LAD) is another Fortune 500 company and one of the best auto and truck dealership stocks to buy. It was held by 39 hedge funds during Q1 2024 with total stakes worth $2.15 billion.
Lithia Motors, Inc. (NYSE:LAD) is an international automotive retailer that operates through two main business models namely Vehicle Operations and Financing Operations. The company through its Vehicle Operations segment sells new and used vehicles and provides parts, repair and maintenance services. On the other hand, the Financing Operations provide vehicle finance and insurance products along with financing for buying and leasing retail vehicles. Lithia Motors, Inc. (NYSE:LAD) operates through its portfolio of renowned brands including Driveway and Greencars at numerous physical locations and through e-commerce platforms. As of December 2023, the company operated in more than 340 locations with 44 brands in the US, UK, and Canada.
The company posted a robust second quarter of 2024, with all-time high quarterly revenue and the first quarter of profitability in the Financing Operations division. Revenue grew by 14% year-over-year to an all-time high of $9.2 billion. Moreover, Financing Operations generated $7.2 million in income during the quarter, compared to a loss of $18.7 million in the previous year. Strong performance in same-store sales and cost-saving measures by management resulted in improved margins and record revenue for the quarter. The strategic edge of the company lies in its vast physical network that spans three major automotive markets. The company entered into strategic partnerships to improve its market share recently. Lithia Motors, Inc. (NYSE:LAD) purchased a minority stake in Wheels, which is a fleet management company in North America. Moreover, the company is also working towards improving its online presence. The digital platform of the company witnessed a 2% increase in monthly unique visitors, reaching 12 million per month.
Lithia Motors, Inc. (NYSE:LAD) presents an attractive entry point for value investors. The stock is currently trading at 10 times its forward earnings, a 34% discount to its sector. The company has a solid history of growth. Its revenue and net income have grown by 23% and 22% over the past 10 years. Moreover, with more than $941 million in cash and cash equivalents and management’s aim to save $150 million in annualized SG&A, there is significant room for growth. Wall Street is bullish on the stock. 15 analysts have a consensus Buy rating and their median price target of $335 represents an upside of 20% from current levels.
Here is what Bonhoeffer Capital Management has to say about Lithia Motors Inc. (NYSE:LAD) in its Q1 2023 investor letter:
Asbury and Lithia have the highest earnings growth driven by growth via consolidation. All of the firms have had a reduction in PE over the last 10 years. The question is: will these historical trends continue? There is a large TAM for continued consolidation, and given the PEs (6-8x earnings) today, buybacks will be accretive to all of these firms. I think the historical trends are intact and will continue into the future; thus, I am bullish on growth for the consolidation-focused automobile dealers.
