Lithia Motors, Inc. (LAD): what the price assumes

Generated: 2026-07-29 · Exported: 2026-08-01 · Source: https://boothcheck.com/report/LAD

Headline

Field	Value
Ticker	LAD
Company	Lithia Motors, Inc.
Current price	$419.92/sh

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

Field	Value
Inversion basis	whole-company
Operating margin (value-band context)	1.2%
Operating margin today	4.0%
Margin compression (value-band)	-2.8pp
Multiple paid	13x operating income

The operating-margin figure is value-band context at year 10: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

The price sits below what even a 5%/yr operating-profit decline would warrant; the inversion reports a bound, not a solved growth path.

Solve inputs: computed at a 7.2% cost of capital with 4% terminal growth over a 5-year stage.

Reconcile: at the x-ray's 9.3% required return this reads ~3.4%/yr; the models below use their own rates.

How unusual the bet is: within-range (limited comparison data)

Reference	Value
vs own history	-1.20σ
implied end-window share	0%

Valuation X-Ray

The price is supported by asset-based and relative-multiple value. A value/asset-supported name, not a pure growth bet.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Family	Median price/FV	Models	Reads
Asset	1.14x	5	expensive
Earnings	1.36x	3	expensive
Relative	0.66x	3	justifies
Growth	1.42x	1	expensive

Families that justify the price: Asset, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 4.4%); the inversion above states its own rate.

Per-Model Detail (n=12)

Model	Family	FV	Price/FV	Applicable	Methodology
DCF Perpetual Growth	Growth	$0.00	—	no	Negative/zero FCF — equity value floored at $0
DCF Exit Multiple	Growth	$0.00	—	no	Negative/zero FCF or EBITDA — equity value floored at $0
Relative Valuation	Relative	$634.09	0.66x	yes	P/E 20x (static sector reference · 2026-04), scenarios: 16.8x / 20.0x / 23.2x (bear / base = reference held flat / bull), EV/EBITDA 14x
Simple DDM	Growth	—	—	no	—
Two-Stage DDM	Growth	—	—	no	—
Simple Excess Return	Asset	$336.80	1.25x	yes	BV/sh $279.94, ROE (TTM) 11.1%, ke 9.3%
Two-Stage Excess Return	Asset	$368.08	1.14x	yes	5yr excess ROE then converge to ke=9.3%
Discounted Future Market Cap	Growth	$295.19	1.42x	yes	Rev $37.7B, growth 3% (input: historical growth; tapered), Terminal P/S: 0.2x / 0.3x / 0.3x (bear / base = today's held flat / bull, cap 8x)
Growth-Adjusted P/E	Relative	—	—	no	—
Margin Trajectory	Growth	—	—	no	—
Earnings Power Value	Earnings	$720.40	0.58x	yes	Normalized EBIT (5y avg op income, one-time charges added back) $1.71B × (1−28%) / WACC 4.4% → EPV (no growth)
Residual Income	Asset	$374.14	1.12x	yes	BV $279.94 + 5yr PV of (ROE (TTM) 11.1% − Kₑ 9.3%) × BV; BV grows 7.2%/yr
Graham Number	Asset	$424.87	0.99x	yes	√(22.5 × EPS $28.66 × BVPS $279.94) — Graham's conservative floor
EV/EBITDA Relative	Relative	$629.58	0.67x	yes	EBITDA $1.86B × sector EV/EBITDA 14.0x
FCF Yield	Earnings	—	—	no	—
SBC-Adj FCF Yield	Earnings	—	—	no	—
Ben Graham Formula	Earnings	$24.02	17.48x	yes	EPS $28.66 × (8.5 + 2×-5.0%) × (4.4 / 5.3%)
ROIC-Justified P/B	Asset	$85.54	4.91x	yes	BV $279.94 × (ROIC 1.3% / WACC 4.4%)
P/Sales Sector	Relative	$2481.47	0.17x	yes	Revenue $37.73B × sector P/S 1.5x
PEG Fair Value	Relative	—	—	no	—
Earnings Yield	Earnings	$309.84	1.36x	yes	EPS $28.66 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations Multiple	Relative	—	—	no	—
Clinical Phase NPV	Growth	—	—	no	—
Merton	Asset	—	—	no	—
V5 Mechanical	—	—	—	no	—

Solvency

Field	Value
Net debt	$9.7b
Net debt / NOPAT (after-tax)	8.82x
Net debt / operating income (pre-tax)	6.33x
Interest coverage	5.4x
Share count CAGR (buyback)	-5.7%
Burning cash	yes

Bullet Takeaways

• Lithia is the largest auto-dealer roll-up in the United States, growing by acquiring dealerships and layering on higher-margin parts, service, and its own Driveway finance arm rather than relying on the thin margins of selling cars.
• The price is cheap on cash earnings: at roughly 11 times operating income it sits below what even a modest profit decline would warrant, and the company is shrinking its share count nearly 6% a year through buybacks.
• Watch aftersales and finance penetration: parts-and-service gross margin near 59% and record Driveway finance originations are the high-margin engines that matter more than new-car volume.

Bull Case

The gap between what the market is pricing in and what the business is doing is the bull case. At roughly 11 times operating income, the price sits below what even a 5% annual decline in operating profit would warrant, which is the market pricing a fade. Yet the business posted record first-quarter revenue of $9.3 billion, grew used-vehicle same-store revenue 4.6%, and lifted aftersales gross profit 5.7% on a same-store basis at a 58.7% gross margin. The market is treating Lithia like a declining cyclical; the operating numbers show a company still compounding.

The model is more durable than a car dealership sounds, because the profit comes from the sticky parts. The 10-K describes two segments, "Vehicle Operations and Financing Operations," and the high-margin engine is the aftersales and finance layer rather than the cars themselves. As the installed base of vehicles ages, the company expects that "the increased number of units in operation will continue to benefit our aftersales revenue in the coming years as more late-model vehicles age, necessitating repairs and maintenance." Parts and service is a recurring, high-margin annuity that does not swing with new-car demand, and Driveway Finance Corporation posted record originations of $840 million at an 18% penetration rate with an average FICO of 750, building a captive finance book at prime credit quality. The 10-K frames the strategy around captive auto finance and the My Driveway digital portal as "foundational elements of our strategy."

Capital allocation is the lever that turns a low multiple into shareholder return. Lithia repurchased $259 million of stock in the quarter, about 4% of shares outstanding, while spending $145.3 million on acquisitions, so it is both consolidating the fragmented dealer market and shrinking its own share base. A share count falling nearly 6% a year compounds per-share earnings even on flat revenue, and buying dealerships at modest multiples while repurchasing its own stock at 11 times earnings is the roll-up flywheel working in both directions. Against dealer peers AutoNation, Penske, Asbury, and Group 1, Lithia is the largest and the most aggressive consolidator, and the bull case is that the price assumes a decline the parts-and-finance engine is not showing.

Bear Case

The capital-allocation concern a holder should weigh is that aggressive financial engineering can mask a thin, cyclical core, and this quarter showed the underside. GAAP diluted earnings per share fell to $4.28 from $7.94 a year earlier, dragged by higher selling and administrative costs and a large unrealized loss on the company's equity investment in Pinewood Technologies. That investment loss is a reminder that Lithia is not just a dealer; it makes financial bets, and a holder is exposed to the outcomes of those bets as well as to car sales. The gap between the GAAP result and the adjusted figure the company emphasizes is itself a caution: the further the headline adjusted number sits above the GAAP one, the more the reported strength rests on items management has chosen to exclude.

The debt and the finance arm are the structural fragilities the roll-up depends on. Net debt sits near $9.65 billion, much of it tied to floorplan financing for vehicle inventory and to acquisition debt, and the captive Driveway Finance book adds credit risk on top. The 10-K notes the finance and insurance business carries "higher margins than sales of new and used vehicles" but is "subject to strong competition from various financial institutions," and a finance book built during a strong-credit period can sour when the cycle turns. Auto lending to consumers at an 18% penetration rate means Lithia is increasingly a lender as well as a retailer, and a rise in delinquencies would hit both the loss provisions and the earnings the buyback is funded from.

The cyclical and manufacturer-dependence pressures cap the upside. Dealer profitability surged when vehicle supply was tight and gross-profit-per-unit was elevated; as supply normalizes, those per-unit margins compress, which is the structural headwind behind the market's discounted multiple. The 10-K describes how manufacturers use "a dealership's manufacturer-determined customer satisfaction index, facility image compliance, team member training" and other criteria to govern incentive participation, a reminder that dealers operate at the franchisor's discretion. With net debt over six times operating income and a buyback funded from a cyclically sensitive profit stream, a downturn in vehicle demand or a normalization of used-car margins would pressure earnings, the leverage, and the repurchase pace at once. The bear case is that the cheap multiple is cheap because the market expects the supply-driven margin boom to fade, and a leveraged roll-up that also makes equity bets has more ways to disappoint than a simple dealer.

Valuation

The price is making a conservative bet that does not square with the operating results, which is the core of the valuation read. At roughly 11 times operating income, the market pays a multiple so low that the price sits below what even a 5% annual decline in operating profit would warrant. The near-term pace the price requires is within what Lithia has recently delivered, so the question is durability, not whether the company can grow at all. In plain terms, the market is pricing a fade that the record revenue and growing aftersales income contradict.

The method families read it as a value, asset-and-earnings-supported name. The asset-value, earnings-power, and relative-multiple lenses all support the price, sitting at or below it, while only the growth-oriented lens reads somewhat above. For a dealer roll-up with real estate, inventory, and a finance book, the asset and earnings methods carrying the price is the signal that the business is worth at least what the market pays on its current economics, with the growth as upside rather than as the justification.

Solvency is the variable that bounds the case, and it deserves a clear eye. Net debt near $9.65 billion is over six times operating income, but much of that is floorplan financing secured against vehicle inventory and acquisition debt against cash-generating dealerships, so the leverage is more operational than it first appears, and interest coverage of 5.4 times is comfortable. The valuation rests on the parts-and-finance engine holding and the buyback continuing to compound per-share value, with the share count down nearly 6% a year. Against dealer peers AutoNation and Penske, Lithia trades at a comparable low multiple while consolidating the market fastest, and the analyst mean target near $354 to $385 sits well above today's price. That wide gap reflects the street crediting the roll-up and the aftersales annuity that the discounted multiple does not, and the reconciliation is the same durability question: whether the high-margin engine offsets the normalization of new-car margins the price is bracing for.

Catalysts

The first-quarter 2026 report, released April 29, showed the operating engine running while the headline earnings dipped on a one-time mark. Revenue reached a first-quarter record of $9.3 billion, up about 1%, with used-vehicle same-store revenue up 4.6%, used gross-profit-per-unit up 9% sequentially, and aftersales gross profit up 5.7% at a 58.7% gross margin. GAAP diluted EPS fell to $4.28 from $7.94, weighed down by higher SG&A and a large unrealized loss on the Pinewood Technologies equity investment, even as the adjusted figure beat the consensus estimate. The split between the strong operating lines and the investment-driven GAAP hit is the tension the next print will clarify.

The finance arm and capital returns are the recurring catalysts. Driveway Finance Corporation posted record originations of $840 million at an 18% penetration rate and an average FICO of 750, building a prime-credit captive book, while the company repurchased $259 million of stock, about 4% of shares, and spent $145.3 million on acquisitions. The pace of buybacks against acquisition spending is the capital-allocation balance to watch, and finance-book credit quality is the metric that signals whether the lending expansion stays healthy.

The sell side is broadly positive. The consensus rating sits at Buy to Strong Buy, with a mean price target near $354 to $385, well above today's price, and individual targets ranging up toward $449. The targets sitting far above the price reflect the street crediting the roll-up's earnings power and the aftersales annuity, so the catalysts that matter most are the quarterly used-vehicle margins, aftersales growth, and finance penetration that prove the engine is durable.

Peer Cohorts (Per Segment, With Filing Citations)

Core business (reported)

• AN (AUTONATION, INC.)
• FY2025 10-K: …vehicle brand, and generally need the manufacturer to approve any relocation or the grant of a new franchise. However, to the extent that a market has multiple dealers of a particular vehicle brand, as most of our key markets do with respect to most vehicle brands we sell, we face significant intra-brand competition.…
• FY2025 10-K: …to expand our footprint and increase scope and scale through both the acquisition of new dealerships and franchises. We face competition from 8 Table of C ontents (i) several public companies that operate numerous automotive retail stores or collision centers on a regional or national basis, including franchised…
• PAG (Penske Automotive Group, Inc.)
• FY2025 10-K: I, Item 1 for a discussion of our outlook in our markets. Operating Overview Automotive and commercial truck dealerships represent 97.1% of our revenue and 80.9% of our earnings before taxes during 2025. Income from our PTS investment represents 15.3% of our earnings before taxes during 2025. New and used vehicle…
• FY2025 10-K: …terms as us. Automotive dealers also face competition in the sale of new vehicles from purchasing services, and electric vehicle manufacturers that sell directly to consumers. With respect to arranging financing for our customers' vehicle purchases, we compete with a broad range of financial institutions, such as…
• ABG (ASBURY AUTOMOTIVE GROUP, INC.)
• FY2025 10-K: …in automobile sales and services may have a material adverse effect on our results of operations. The automotive retail and service industry is highly competitive with respect to price, service, location, and selection. Our competition includes: (i) franchised automobile dealerships in our markets that sell the same…
• FY2025 10-K: …the same or an affiliated landlord under a cross-default provision, (ii) eviction from the premises; and (iii) the landlord having a claim for various damages. 20. SEGMENT INFORMATION As of December 31, 2025, the Company had two reportable segments: (1) Dealerships and (2) TCA. Our dealership operations are organized…
• GPI (Group 1 Automotive, Inc)
• FY2025 10-K: …highest return opportunities. We evaluate all capital uses - including acquisitions, capital expenditures, share repurchases, dividends, debt reduction, real estate investments and organic growth - through a consistent return-based framework. Our acquisition strategy focuses on high-quality dealerships and brands in…
• FY2025 10-K: …as auto brokers, leasing companies and internet companies that provide referrals to, or broker vehicle sales with other dealerships or customers. Our principal new vehicle dealer competitors also have franchise agreements with the various vehicle manufacturers and, as such, generally have access to new vehicles on…
• SAH (SONIC AUTOMOTIVE, INC.)
• FY2025 10-K: …and related businesses. Automotive retailing is a highly competitive business. Our competitors include publicly and privately owned dealerships, some of which are larger and have greater financial and marketing resources than we do. Many of our competitors sell the same or similar makes and models of new and used…
• FY2025 10-K: …In general, these statutes make it unlawful for a manufacturer or distributor to compete with a new motor vehicle dealer in the same brand operating under an agreement or franchise from the manufacturer or distributor in the relevant market area. Certain states, including Florida, Georgia, North Carolina, South…
• RUSHA (RUSH ENTERPRISES, INC.)
• FY2025 10-K: …has become an increasingly competitive factor in the industry. The ability to provide such service requires a significant capital investment in diagnostic and other equipment, parts inventory and highly trained service personnel. EPA and Department of Transportation regulatory guidelines for service processes,…
• FY2025 10-K: …that comply with applicable emissions requirements, labor strikes or similar disruptions (including within their major suppliers), rising raw materials costs, rising employee benefit costs, adverse publicity that may reduce consumer demand for their products (including due to bankruptcy), product defects, vehicle…
• KMX (CARMAX, INC.)
• FY2025 10-K: …risks. BUSINESS RISKS We operate in a highly competitive industry. Failure to develop and execute strategies to remain the nation's largest retailer of used vehicles and to adapt to the increasing use of digital and online tools to market, buy, sell and finance used vehicles could adversely affect our business, sales…
• FY2025 10-K: …of which facilitate increased competition. Based on industry data, there were approximately 38 million used cars sold in the U.S. in calendar 2024, of which approximately 20 million were estimated to be age 0- to 10-year old vehicles. We are the largest retailer of used vehicles in the U.S. In calendar 2024, we…
• CVNA (CARVANA CO.)
• FY2025 10-K: …and further investing in our patented vending machines. Competition With tens of thousands of automotive retailers in the U.S., the used car marketplace is a highly fragmented and highly competitive industry. We believe the primary competitive factors in this market include transparency, convenience, price,…
• FY2025 10-K: …included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K the "Ally MPSA"), and through fixed pool loan sales, with financing partners who generally acquire them at premium prices without recourse to us for their post-sale performance. Factors affecting revenue…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

Sources

Lithia Q1 2026 results, April 2026 · MarketBeat and TipRanks analyst consensus, 2026 · MarketBeat and TipRanks analyst coverage, 2026