Guggenheim Lowers Lithia & Driveway Price Target to $380, Maintains Buy Rating

Guggenheim lowered Lithia & Driveway's price target to $380 from $383 and maintained a Buy rating. The firm was previously concerned about the group's performance in an SAAR slowdown, but the recent pullback and positive inflection in sales in July have de-risked the near-term setup. Several franchise auto dealers reported Q2 results that outpaced consensus estimates, but reactions were generally negative despite strong results.

Lithia Motors Inc. (LAD) and its captive finance subsidiary, Driveway Finance Corp., reported robust financial performance for the second quarter of 2025, with record revenue and earnings growth. The company's stock price, however, has been negatively impacted by market reactions to similar strong results reported by several franchise auto dealers.

Key Financial Highlights

- Revenue: Lithia reported record revenue of $9.6 billion in Q2 2025, representing a 4% year-over-year same-store revenue increase [1].
- Earnings per Share (EPS): Diluted EPS was $9.87, up 25% year-over-year, while adjusted EPS reached $10.24, up 30% year-over-year [1].
- Financing Income: Financing income more than doubled year-over-year, rising from $7 million to $20 million in Q2 2025, driven by a 50 basis point expansion in net interest margin [1].
- After-Sales Profit Mix: Over 60% of net profit now comes from after-sales operations in Q2 2025 [1].
- Free Cash Flow: Free cash flow was $269 million in Q2 2025 [1].
- Share Repurchases: 3% of outstanding shares were repurchased in the first half of 2025, including 1.5% in Q2 2025 at an average price of $306 [1].

Market Reactions and Guggenheim's Adjustment

Despite the strong financial results, Lithia's stock price has faced negative reactions, with several franchise auto dealers reporting Q2 results that outpaced consensus estimates but received generally negative market responses. Guggenheim lowered Lithia's price target to $380 from $383, maintaining a Buy rating. The firm cited the recent pullback and positive inflection in sales in July as de-risking the near-term setup [1].

Outlook

Lithia's strategy of local execution, integrated technology, and capital discipline is positioning the company to grow profitably and lead the industry in innovation. The company continues to focus on store performance, scaling high-margin adjacencies, deepening customer relationships, and deploying capital in a way that is most valuable to shareholders.

References

[1] https://www.fool.com/earnings/call-transcripts/2025/08/07/lithia-lad-q2-2025-earnings-call-transcript/