NEW YORK (TheStreet) -- Lithia Motors (LAD - Get Report) stock is gaining Monday after announcing it has entered into a definitive agreement to purchase DCH Auto Group for $362.5 million, $340 million in cash and $22.5 million, or around 300,000 shares, of Lithia common stock. By midday, shares had added 13.6% to $87.11.
Upon closing, DCH's 27 stores will combine with Lithia's 101 stores. The DCH stores are expected to generate $2.3 billion in annualized revenue and contribute 65 cents to 75 cents a share in earnings per year. The offer is expected to close in the fourth quarter, subject to customary closing conditions.
"For the past several years, we have been seeking a strategic partner to help us to enter the Eastern United States. The DCH organization is an ideal fit with our existing team," explains CEO Bryan DeBoer in a statement.
Separately, TheStreet Ratings team rates LITHIA MOTORS INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate LITHIA MOTORS INC (LAD) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, growth in earnings per share, reasonable valuation levels and increase in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 2.2%. Since the same quarter one year prior, revenues rose by 19.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 42.63% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, LAD should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- LITHIA MOTORS INC has improved earnings per share by 11.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, LITHIA MOTORS INC increased its bottom line by earning $4.02 versus $3.05 in the prior year. This year, the market expects an improvement in earnings ($4.65 versus $4.02).
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Specialty Retail industry and the overall market on the basis of return on equity, LITHIA MOTORS INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full analysis from the report here: LAD Ratings Report