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Earnings Estimates Moving Higher for Lithia Motors (LAD): Time to Buy?

Zacks Equity Research

Lithia Motors (LAD) could be a solid addition to your portfolio given a notable revision in the company's earnings estimates. While the stock has been gaining lately, the trend might continue since its earnings outlook is still improving.

The upward trend in estimate revisions for this auto dealership chain reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. This insight is at the core of our stock rating tool -- the Zacks Rank.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

Consensus earnings estimates for the next quarter and full year have moved considerably higher for Lithia Motors, as there has been strong agreement among the covering analysts in raising estimates.

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The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

The earnings estimate of $2.88 per share for the current quarter represents a change of +14.29% from the number reported a year ago.

The Zacks Consensus Estimate for Lithia Motors has increased 7.87% over the last 30 days, as four estimates have gone higher compared to no negative revisions.

Current-Year Estimate Revisions

For the full year, the earnings estimate of $10.96 per share represents a change of +9.82% from the year-ago number.

The revisions trend for the current year also appears quite promising for Lithia Motors, with five estimates moving higher over the past month compared to no negative revisions. The consensus estimate has also received a boost over this time frame, increasing 7.01%.

Favorable Zacks Rank

Thanks to promising estimate revisions, Lithia Motors currently carries a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Investors have been betting on Lithia Motors because of its solid estimate revisions, as evident from the stock's 21.1% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.


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Lithia Motors, Inc. (LAD) : Free Stock Analysis Report
 
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Zacks Investment Research