Intrinsic value of Lithia Motors, Inc. - LAD

Previous Close

$116.35

  Intrinsic Value

$85.56

stock screener

  Rating & Target

sell

-26%

Previous close

$116.35

 
Intrinsic value

$85.56

 
Up/down potential

-26%

 
Rating

sell

We calculate the intrinsic value of LAD stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 2.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  10.00
  9.50
  9.05
  8.64
  8.28
  7.95
  7.66
  7.39
  7.15
  6.94
  6.74
  6.57
  6.41
  6.27
  6.14
  6.03
  5.93
  5.83
  5.75
  5.68
  5.61
  5.55
  5.49
  5.44
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
Revenue, $m
  13,003
  14,238
  15,527
  16,869
  18,266
  19,719
  21,229
  22,798
  24,428
  26,123
  27,885
  29,716
  31,622
  33,605
  35,669
  37,820
  40,061
  42,399
  44,837
  47,381
  50,038
  52,814
  55,715
  58,747
  61,919
  65,237
  68,710
  72,345
  76,152
  80,139
Variable operating expenses, $m
  12,463
  13,640
  14,868
  16,147
  17,478
  18,862
  20,301
  21,796
  23,350
  24,964
  26,570
  28,316
  30,132
  32,021
  33,988
  36,038
  38,174
  40,400
  42,724
  45,148
  47,680
  50,325
  53,089
  55,979
  59,001
  62,163
  65,472
  68,936
  72,563
  76,362
Fixed operating expenses, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Total operating expenses, $m
  12,462
  13,639
  14,867
  16,146
  17,477
  18,861
  20,300
  21,795
  23,349
  24,963
  26,569
  28,315
  30,131
  32,020
  33,987
  36,037
  38,173
  40,399
  42,722
  45,146
  47,678
  50,323
  53,087
  55,977
  58,999
  62,161
  65,470
  68,934
  72,561
  76,360
Operating income, $m
  541
  600
  660
  724
  790
  858
  929
  1,003
  1,080
  1,160
  1,315
  1,402
  1,491
  1,585
  1,682
  1,784
  1,889
  1,999
  2,114
  2,234
  2,360
  2,490
  2,627
  2,770
  2,920
  3,076
  3,240
  3,411
  3,591
  3,778
EBITDA, $m
  684
  749
  817
  887
  960
  1,037
  1,116
  1,199
  1,284
  1,373
  1,466
  1,562
  1,662
  1,766
  1,875
  1,988
  2,106
  2,228
  2,356
  2,490
  2,630
  2,775
  2,928
  3,087
  3,254
  3,428
  3,611
  3,802
  4,001
  4,211
Interest expense (income), $m
  50
  186
  209
  232
  257
  282
  309
  337
  366
  396
  427
  460
  493
  528
  565
  603
  642
  683
  726
  771
  818
  866
  917
  970
  1,026
  1,084
  1,144
  1,208
  1,274
  1,344
  1,417
Earnings before tax, $m
  356
  391
  428
  467
  507
  549
  592
  637
  684
  733
  856
  908
  963
  1,020
  1,080
  1,142
  1,206
  1,273
  1,344
  1,417
  1,493
  1,573
  1,657
  1,744
  1,836
  1,932
  2,032
  2,137
  2,247
  2,362
Tax expense, $m
  96
  106
  116
  126
  137
  148
  160
  172
  185
  198
  231
  245
  260
  275
  291
  308
  326
  344
  363
  383
  403
  425
  447
  471
  496
  522
  549
  577
  607
  638
Net income, $m
  260
  285
  313
  341
  370
  401
  432
  465
  499
  535
  625
  663
  703
  745
  788
  833
  880
  930
  981
  1,034
  1,090
  1,149
  1,210
  1,273
  1,340
  1,410
  1,483
  1,560
  1,640
  1,724

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  5,921
  6,484
  7,071
  7,682
  8,318
  8,979
  9,667
  10,381
  11,124
  11,896
  12,698
  13,532
  14,400
  15,303
  16,243
  17,222
  18,243
  19,307
  20,417
  21,576
  22,786
  24,050
  25,371
  26,752
  28,196
  29,707
  31,289
  32,944
  34,678
  36,493
Adjusted assets (=assets-cash), $m
  5,921
  6,484
  7,071
  7,682
  8,318
  8,979
  9,667
  10,381
  11,124
  11,896
  12,698
  13,532
  14,400
  15,303
  16,243
  17,222
  18,243
  19,307
  20,417
  21,576
  22,786
  24,050
  25,371
  26,752
  28,196
  29,707
  31,289
  32,944
  34,678
  36,493
Revenue / Adjusted assets
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
  2.196
Average production assets, $m
  1,768
  1,936
  2,112
  2,294
  2,484
  2,682
  2,887
  3,100
  3,322
  3,553
  3,792
  4,041
  4,301
  4,570
  4,851
  5,144
  5,448
  5,766
  6,098
  6,444
  6,805
  7,183
  7,577
  7,990
  8,421
  8,872
  9,345
  9,839
  10,357
  10,899
Working capital, $m
  2,809
  3,075
  3,354
  3,644
  3,945
  4,259
  4,585
  4,924
  5,277
  5,643
  6,023
  6,419
  6,830
  7,259
  7,705
  8,169
  8,653
  9,158
  9,685
  10,234
  10,808
  11,408
  12,034
  12,689
  13,375
  14,091
  14,841
  15,627
  16,449
  17,310
Total debt, $m
  3,862
  4,299
  4,756
  5,231
  5,726
  6,241
  6,776
  7,332
  7,909
  8,510
  9,134
  9,783
  10,458
  11,160
  11,892
  12,654
  13,448
  14,276
  15,140
  16,041
  16,983
  17,966
  18,994
  20,068
  21,192
  22,367
  23,598
  24,886
  26,234
  27,647
Total liabilities, $m
  4,607
  5,044
  5,501
  5,976
  6,471
  6,986
  7,521
  8,077
  8,654
  9,255
  9,879
  10,528
  11,203
  11,905
  12,637
  13,399
  14,193
  15,021
  15,885
  16,786
  17,728
  18,711
  19,739
  20,813
  21,937
  23,112
  24,343
  25,631
  26,979
  28,392
Total equity, $m
  1,315
  1,439
  1,570
  1,705
  1,847
  1,993
  2,146
  2,305
  2,470
  2,641
  2,819
  3,004
  3,197
  3,397
  3,606
  3,823
  4,050
  4,286
  4,533
  4,790
  5,059
  5,339
  5,632
  5,939
  6,260
  6,595
  6,946
  7,314
  7,698
  8,101
Total liabilities and equity, $m
  5,922
  6,483
  7,071
  7,681
  8,318
  8,979
  9,667
  10,382
  11,124
  11,896
  12,698
  13,532
  14,400
  15,302
  16,243
  17,222
  18,243
  19,307
  20,418
  21,576
  22,787
  24,050
  25,371
  26,752
  28,197
  29,707
  31,289
  32,945
  34,677
  36,493
Debt-to-equity ratio
  2.940
  2.990
  3.030
  3.070
  3.100
  3.130
  3.160
  3.180
  3.200
  3.220
  3.240
  3.260
  3.270
  3.290
  3.300
  3.310
  3.320
  3.330
  3.340
  3.350
  3.360
  3.360
  3.370
  3.380
  3.390
  3.390
  3.400
  3.400
  3.410
  3.410
Adjusted equity ratio
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  260
  285
  313
  341
  370
  401
  432
  465
  499
  535
  625
  663
  703
  745
  788
  833
  880
  930
  981
  1,034
  1,090
  1,149
  1,210
  1,273
  1,340
  1,410
  1,483
  1,560
  1,640
  1,724
Depreciation, amort., depletion, $m
  143
  149
  156
  163
  171
  179
  187
  195
  204
  213
  150
  160
  171
  181
  193
  204
  216
  229
  242
  256
  270
  285
  301
  317
  334
  352
  371
  390
  411
  432
Funds from operations, $m
  402
  435
  469
  504
  541
  579
  619
  661
  704
  748
  775
  824
  874
  926
  981
  1,037
  1,097
  1,158
  1,223
  1,290
  1,360
  1,434
  1,510
  1,591
  1,674
  1,762
  1,854
  1,950
  2,051
  2,157
Change in working capital, $m
  255
  267
  278
  290
  302
  314
  326
  339
  352
  366
  380
  396
  412
  428
  446
  465
  484
  505
  527
  550
  574
  600
  627
  655
  685
  717
  750
  785
  822
  861
Cash from operations, $m
  147
  168
  190
  214
  239
  266
  293
  322
  351
  382
  395
  428
  462
  498
  535
  573
  612
  654
  696
  740
  786
  834
  884
  935
  989
  1,045
  1,104
  1,165
  1,229
  1,295
Maintenance CAPEX, $m
  -64
  -70
  -77
  -84
  -91
  -99
  -106
  -115
  -123
  -132
  -141
  -150
  -160
  -171
  -181
  -193
  -204
  -216
  -229
  -242
  -256
  -270
  -285
  -301
  -317
  -334
  -352
  -371
  -390
  -411
New CAPEX, $m
  -160
  -168
  -175
  -183
  -190
  -198
  -205
  -213
  -222
  -230
  -240
  -249
  -259
  -270
  -281
  -292
  -305
  -318
  -332
  -346
  -361
  -377
  -395
  -412
  -431
  -451
  -472
  -494
  -518
  -542
Cash from investing activities, $m
  -224
  -238
  -252
  -267
  -281
  -297
  -311
  -328
  -345
  -362
  -381
  -399
  -419
  -441
  -462
  -485
  -509
  -534
  -561
  -588
  -617
  -647
  -680
  -713
  -748
  -785
  -824
  -865
  -908
  -953
Free cash flow, $m
  -77
  -70
  -62
  -52
  -42
  -30
  -19
  -6
  7
  20
  14
  28
  43
  57
  73
  88
  104
  119
  136
  152
  169
  187
  204
  222
  241
  260
  280
  300
  321
  342
Issuance/(repayment) of debt, $m
  420
  438
  457
  476
  495
  515
  535
  556
  578
  600
  624
  649
  675
  703
  731
  762
  794
  828
  864
  902
  941
  983
  1,028
  1,074
  1,124
  1,176
  1,230
  1,288
  1,349
  1,412
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  420
  438
  457
  476
  495
  515
  535
  556
  578
  600
  624
  649
  675
  703
  731
  762
  794
  828
  864
  902
  941
  983
  1,028
  1,074
  1,124
  1,176
  1,230
  1,288
  1,349
  1,412
Total cash flow (excl. dividends), $m
  343
  367
  395
  423
  453
  484
  516
  550
  584
  620
  638
  677
  718
  760
  804
  850
  898
  947
  999
  1,054
  1,111
  1,170
  1,232
  1,297
  1,365
  1,436
  1,510
  1,588
  1,669
  1,755
Retained Cash Flow (-), $m
  -117
  -125
  -130
  -136
  -141
  -147
  -153
  -159
  -165
  -171
  -178
  -185
  -193
  -200
  -209
  -217
  -227
  -236
  -246
  -257
  -269
  -281
  -293
  -307
  -321
  -335
  -351
  -368
  -385
  -403
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  225
  243
  265
  288
  312
  337
  364
  391
  419
  449
  460
  492
  525
  560
  595
  632
  671
  711
  753
  797
  842
  889
  939
  990
  1,044
  1,100
  1,159
  1,220
  1,284
  1,352
Discount rate, %
  10.40
  10.92
  11.47
  12.04
  12.64
  13.27
  13.94
  14.63
  15.37
  16.13
  16.94
  17.79
  18.68
  19.61
  20.59
  21.62
  22.70
  23.84
  25.03
  26.28
  27.59
  28.97
  30.42
  31.94
  33.54
  35.22
  36.98
  38.83
  40.77
  42.81
PV of cash for distribution, $m
  204
  197
  191
  183
  172
  160
  146
  131
  116
  101
  82
  69
  57
  46
  36
  28
  21
  15
  11
  7
  5
  3
  2
  1
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Lithia Motors, Inc. is an operator of automotive franchises and a retailer of new and used vehicles and related services. As of February 28, 2017, it offered 30 brands of new vehicles and all brands of used vehicles in 154 stores in the United States and online at Lithia.com, DCHauto.com and CarboneCars.com. It operates through three segments: Domestic, Import and Luxury. Its Domestic segment consists of retail automotive franchises that sell new vehicles manufactured by Chrysler, General Motors and Ford. Its Import segment consists of retail automotive franchises that sell new vehicles manufactured primarily by Honda, Toyota, Subaru, Nissan and Volkswagen. Its Luxury segment consists of retail automotive franchises that sell new vehicles manufactured primarily by BMW, Mercedes-Benz and Lexus. The franchises in each segment also sell used vehicles, parts and automotive services, and automotive finance and insurance products.

FINANCIAL RATIOS  of  Lithia Motors, Inc. (LAD)

Valuation Ratios
P/E Ratio 14.8
Price to Sales 0.3
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 33.6
Price to Free Cash Flow -208.9
Growth Rates
Sales Growth Rate 10.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 21.7%
Cap. Spend. - 3 Yr. Gr. Rate 15.1%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 84.4%
Total Debt to Equity 262.6%
Interest Coverage 7
Management Effectiveness
Return On Assets 6.6%
Ret/ On Assets - 3 Yr. Avg. 6.7%
Return On Total Capital 6.5%
Ret/ On T. Cap. - 3 Yr. Avg. 6.8%
Return On Equity 22.7%
Return On Equity - 3 Yr. Avg. 23.4%
Asset Turnover 2.5
Profitability Ratios
Gross Margin 15%
Gross Margin - 3 Yr. Avg. 15.1%
EBITDA Margin 4.4%
EBITDA Margin - 3 Yr. Avg. 4.6%
Operating Margin 3.9%
Oper. Margin - 3 Yr. Avg. 4%
Pre-Tax Margin 3.3%
Pre-Tax Margin - 3 Yr. Avg. 3.5%
Net Profit Margin 2.3%
Net Profit Margin - 3 Yr. Avg. 2.4%
Effective Tax Rate 30.6%
Eff/ Tax Rate - 3 Yr. Avg. 32.2%
Payout Ratio 12.2%

LAD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LAD stock intrinsic value calculation we used $11821 million for the last fiscal year's total revenue generated by Lithia Motors, Inc.. The default revenue input number comes from 0001 income statement of Lithia Motors, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our LAD stock valuation model: a) initial revenue growth rate of 10% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 10.4%, whose default value for LAD is calculated based on our internal credit rating of Lithia Motors, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Lithia Motors, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of LAD stock the variable cost ratio is equal to 95.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $-1 million in the base year in the intrinsic value calculation for LAD stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Lithia Motors, Inc..

Corporate tax rate of 27% is the nominal tax rate for Lithia Motors, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the LAD stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for LAD are equal to 13.6%.

Life of production assets of 25.2 years is the average useful life of capital assets used in Lithia Motors, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for LAD is equal to 21.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1197.2 million for Lithia Motors, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 23.198 million for Lithia Motors, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Lithia Motors, Inc. at the current share price and the inputted number of shares is $2.7 billion.

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