Analyst Note
| David Whiston, CFA, CPA, CFE |Lithia continues to set the bar in the dealer space with another outstanding quarter and adjusted operating margins reaching an incredible 8%, about double what the company was doing before the pandemic. Third-quarter adjusted diluted EPS of $11.21 beat the Refinitiv consensus of $9.28. We're raising our fair value estimate to $428 from $421, mostly from the time value of money since our last update as well as higher 2021 revenue and gross margin in light of how 2021 is tracking. CEO Bryan DeBoer said current elevated margin levels are sustainable for the next few quarters due to low inventory and an uptick in miles driven. We agree with this prediction because the chip shortage is enabling excellent pricing power for dealers, and although the worst of the shortage we think is happening now, we don’t expect a return to normal until at least the back half of 2022.