Lithia's Third Quarter Shows No Reason to Think Company's Long-Term Goals Are in Jeopardy

Lithia Motors' third-quarter results were a rare earnings miss versus Refinitiv consensus, but we still see no reason to change our fair value estimate because we remain confident management can achieve its 2025 targets of $50 billion in revenue and $55-$60 in EPS. Adjusted diluted EPS of $11.08 ($11.84 consensus) suffered a $0.54 foreign exchange hit from the strong dollar translation on the firm’s Canadian earnings. Although the stock is down by about 8% after the release, the results to us still look mostly solid. Same-store revenue rose 3.7% year over year and same-store gross profit fell by 3.8%, with all segments posting gross profit declines (except service). We like that management is repurchasing its stock well below our fair value estimate with third-quarter buybacks totaling about $37 million and nearly $650 million through third quarter this year—$77 million of authorization remains available, and total liquidity is about $2 billion.