Last week saw the newest full-year earnings release from Lithia Motors, Inc. (NYSE:LAD), an important milestone in the company’s journey to build a stronger business. It was a credible result overall, with revenues of US$13b and statutory earnings per share of US$11.60 both in line with analyst estimates, showing that Lithia Motors is executing in line with expectations. This is an important time for investors, as they can track a company’s performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. We’ve gathered the most recent statutory forecasts to see whether analysts have changed their earnings models, following these results.
Taking into account the latest results, the most recent consensus for Lithia Motors from ten analysts is for revenues of US$13.5b in 2020, which is an okay 6.9% increase on its sales over the past 12 months. Statutory earnings per share are expected to ascend 10% to US$12.79. Yet prior to the latest earnings, analysts had been forecasting revenues of US$13.2b and earnings per share (EPS) of US$12.49 in 2020. It looks like there’s been a modest increase in sentiment following the latest results, with analysts becoming a bit more optimistic in their predictions for both revenues and earnings.
Despite these upgrades, the consensus price target fell 5.9% to US$153, perhaps signalling that the uplift in performance is not expected to last. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Lithia Motors analyst has a price target of US$176 per share, while the most pessimistic values it at US$102. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. It’s pretty clear that analysts expect Lithia Motors’s revenue growth will slow down substantially, with revenues next year expected to grow 6.9%, compared to a historical growth rate of 14% over the past five years. Compare this to the other companies in this market with analyst coverage, which are forecast to grow their revenue at 5.7% per year. Factoring in the forecast slowdown in growth, it looks like analysts are expecting Lithia Motors to grow at about the same rate as the wider market.
The Bottom Line
The most important thing to take away from this is that analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Lithia Motors following these results. They also upgraded their revenue forecasts, although the latest estimates suggest that Lithia Motors will grow in line with the overall market. Analysts also downgraded their price target, suggesting that the latest news has led analysts to become more pessimistic about the intrinsic value of the business.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have forecasts for Lithia Motors going out to 2022, and you can see them free on our platform here.
You can also view our analysis of Lithia Motors’s balance sheet, and whether we think Lithia Motors is carrying too much debt, for free on our platform here.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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