“Lithia Motors, Inc. (LAD) is an operator of automotive franchises and a retailer of new and used vehicles and services. ... Ford’s Strong Buy recommendation on Lithia Motors is the result of our systematic analysis on three basic characteristics: earnings strength, relative valuation and recent stock price movement. ...
“Earnings strength is positive. Ford’s earnings momentum measures the acceleration or deceleration in trailing 12 month operating earnings per share growth. ... Lithia Motors’ earnings have increased from $0.74 to an estimated $1.24 over the past five quarters, they have shown acceleration in quarterly growth rates when adjusted for the volatility of earnings. This indicates an improvement in future earnings growth may occur. ... Relative valuation is positive. Lithia’s operating earnings yield of 6.3% ranks above 70% of the other companies in the Ford universe of stocks, indicating that it is undervalued. [Finally,] price movement is very positive. Lithia’s stock price is up 211.6% in the last 12 months, up 31.4% in the past quarter and up 13.1% in the past month. This historical performance should lead to above-average price performance in the next one to three months.”
Richard Segarra, CFA, Ford Equity Research Report, 7/1/11
