Lithia Motors (NYSE: LAD) and CarMax (NYSE:KMX) are both mid-cap retail/wholesale companies, but which is the better business? We will contrast the two companies based on the strength of their institutional ownership, risk, analyst recommendations, profitabiliy, dividends, earnings and valuation.

Insider & Institutional Ownership

99.0% of Lithia Motors shares are owned by institutional investors. 7.9% of Lithia Motors shares are owned by company insiders. Comparatively, 1.7% of CarMax shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Risk and Volatility

Lithia Motors has a beta of 1.73, indicating that its stock price is 73% more volatile than the S&P 500. Comparatively, CarMax has a beta of 1.34, indicating that its stock price is 34% more volatile than the S&P 500.

Profitability

This table compares Lithia Motors and CarMax’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Lithia Motors 2.32% 21.91% 5.35%
CarMax 4.07% 21.72% 4.19%

Analyst Recommendations

This is a breakdown of current recommendations and price targets for Lithia Motors and CarMax, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Lithia Motors 1 2 5 0 2.50
CarMax 1 4 7 0 2.50

Lithia Motors presently has a consensus price target of $106.20, indicating a potential upside of 7.11%. CarMax has a consensus price target of $68.73, indicating a potential upside of 3.99%. Given Lithia Motors’ higher possible upside, equities analysts clearly believe Lithia Motors is more favorable than CarMax.

Dividends

Lithia Motors pays an annual dividend of $1.08 per share and has a dividend yield of 1.1%. CarMax does not pay a dividend. Lithia Motors pays out 13.2% of its earnings in the form of a dividend. CarMax has raised its dividend for 6 consecutive years.

Earnings and Valuation

This table compares Lithia Motors and CarMax’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Lithia Motors $8.93 billion 0.26 $413.53 million $8.19 12.11
CarMax $17.08 billion 0.71 $1.30 billion $3.50 18.88

CarMax has higher revenue and earnings than Lithia Motors. Lithia Motors is trading at a lower price-to-earnings ratio than CarMax, indicating that it is currently the more affordable of the two stocks.

About Lithia Motors

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.

About CarMax

CarMax, Inc. (CarMax) is a holding company. The Company is a retailer of used vehicles. The Company operates through two segments: CarMax Sales Operations and CarMax Auto Finance (CAF). The Company’s CarMax Sales Operations segment consists of all aspects of its auto merchandising and service operations, excluding financing provided by CAF. The Company’s CAF segment consists of its own finance operation that provides vehicle financing through CarMax stores. The Company operates approximately 160 used car stores in over 70 metropolitan markets. The Company’s products and services include retail merchandising, wholesale auctions, extended protection plans (EPPs), reconditioning and service, and customer credit. The Company’s CarMax Sales Operations segment sells used vehicles, purchases used vehicles from customers and other sources, sells related products and services, and arranges financing options for customers. CAF operates in the auto finance sector of the consumer finance market.

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