Lithia Motors’ Stock (LAD) Upside Catalyst Watch At Citi, Sees Acquisition-Driven Upside

Lithia Motors' stock (NYSE: LAD) has been under pressure in recent weeks, declining 16.3% over the last month, yet the tide could be about to turn according to one analyst. Citi have released a note that outlines opportunity in the dip, reiterating its Buy rating and raising its price target to $383 from $378.

The firm also added an “upside 30-day catalyst watch” on Lithia, signaling a belief that the recent price weakness is an overreaction. Citi anticipates that Lithia will capitalize on new trade agreements to aggressively pursue acquisitions, fueling growth. Moreover, the prospect of interest rate cuts by the Federal Reserve in September is expected to provide a tailwind for the entire auto dealer sector.

Lithia recently reported strong second-quarter results, with revenue reaching a record $9.6 billion. This performance translated to a 25% increase in diluted earnings per share and a 30% rise in adjusted diluted earnings per share, demonstrating the company’s ability to drive profitability. This financial strength, coupled with an improved Fortune 500 ranking to #124, underscores Lithia's position as a leading automotive retailer.

However, the stock's recent performance has been lackluster.

Despite the short-term challenges, Lithia continues to expand its retail network, recently strengthening its presence in the Southeast region. This strategic expansion aligns with the company's overall growth strategy and is expected to contribute to future revenue streams. Furthermore, the recognition of executives Tina Miller (CFO) and Dianna du Preez (CCO) as leading women in the automotive industry underscores the company's strong leadership.

“We believe that the recent selloff is overdone and creates an attractive entry point for investors,” notes Citi. “Lithia's strong financial position, coupled with its aggressive acquisition strategy, positions the company for significant growth in the coming years.”

Analysts have a wide range of price targets for LAD, stretching from $310 to $500, whilst the average price target of $388.71 reflects a healthy perceived upside from the current price action.

While Citi's bullish outlook provides a ray of hope, the markets will be closely monitoring Lithia's acquisition activity and the Federal Reserve's policy decisions in the coming months for signs of the thesis coming into play.