Lithia Motors (LAD) was a shining star of the automotive dealer group industry for the past three years. And just when car sales were breaking recovery records left and right this year, the stock — and more importantly, its earnings momentum — reached a peak.
One wonders if all the terrific sales numbers were also juiced in large part by ultra-cheap financing and special incentives.
On Monday October 13, Lithia warned that it is expecting its 2014 third quarter adjusted net income to be in the range of $34 million to $34.8 million, or $1.30 to $1.32 per diluted share, below its previous forecast of $1.36 to $1.38 per share.
This, of course, brought a wave of analyst earnings estimate revisions (EER). They took this year’s consensus down from $5.05 to $4.86 and next year got clipped even more on a percentage basis from $6.40 to $5.90.
Here’s a look at the proprietary Zacks Price & Consensus chart, which plots EER against the stock price over time…
As you can see, this earnings momo high-flyer just got its wings clipped.
But if the US consumer and Lithia both continue to be as strong as they were in the past few years in an expanding economy, then look for LAD to find a bottom sometime in the next few months.
Just don’t buy it until the earnings picture turns around. Your reference point on the turn-around will be the Zacks Rank moving back up out of cell block #5.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.
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