EarningsBeats Digest

Published: Fri, 10/30/20

EarningsBeats.com Digest for October 30, 2020

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Finding A Specialty Retail Winner

Specialty retail ($DJUSRS) has been a dominant industry throughout 2020 and the group's been consolidating on a relative basis since early-July. It seems to make sense to look under the hood of this industry group to find a leader that could excel in the weeks to come if the group begins to show leadership once again. That takes me to Lithia Motors (LAD), which has seen a stellar advance in 2020. The technical outlook has been strong for many months, but the stock definitely became very overbought and needed its recent period of weakness:

The action here certainly looks to me like "buy on rumor, sell on news". On October 21st, LAD posted its latest quarterly results, which were strong. Revenues were reported at $3.62 billion, topping $3.57 billion estimates. EPS also beat estimates, $6.89 vs. $6.21. LAD had raised guidance on September 29th, indicating that EPS would fall between $6.10-$6.40 per share. They easily beat their own raised guidance. One overhand right now for LAD is the additional supply of shares created by their secondary public offering announced on September 29th as well. Shares were priced at 220, just before LAD skyrocketed to nearly 300 per share. Now back closer to 230, LAD may be ready for another strong run. I suspect buyers will be ready and willing if the stock price nears 220 again. The reward to risk is improving on a leader in the specialty retail space.

Happy trading!

Tom Bowley

Chief Market Strategist

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