Why Lithia (LAD) Stock Is Up Today

What Happened?

Shares of automotive retailer Lithia Motors (NYSE:LAD) jumped 3% in the afternoon session after the company announced a significant expansion of its share repurchase program. 

Lithia's Board of Directors approved a $750 million increase to the plan, bringing the total repurchase capacity to $1.08 billion. A share buyback is when a company purchases its own outstanding shares to reduce the number available on the open market, which can increase the value of the remaining shares. This action often signals management's confidence in the company's future. 

President and CEO Bryan DeBoer stated the move underscores a "long-term conviction in LAD's strategy" and a belief that its shares are trading below intrinsic value, making repurchases an "attractive and value-accretive" use of capital for shareholders.

After the initial pop the shares cooled down to $331.50, up 2.6% from previous close.

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What Is The Market Telling Us

Lithia’s shares are somewhat volatile and have had 13 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 13 days ago when the stock gained 4% on the news that markets continued to rally amid growing investor optimism for a Federal Reserve interest rate cut in September. 

This optimism was spurred by a recent Consumer Price Index (CPI) report that did not show runaway inflation, increasing the perceived probability of a rate cut to over 90%. Lower interest rates are generally seen as a positive for the economy as they reduce borrowing costs for consumers, which can stimulate spending on non-essential goods. Consequently, investors bid up shares in the apparel, home furnishings, and automotive retail industries in anticipation of stronger consumer demand.

Lithia is down 4.9% since the beginning of the year, and at $331.50 per share, it is trading 15.9% below its 52-week high of $394.27 from November 2024. Investors who bought $1,000 worth of Lithia’s shares 5 years ago would now be looking at an investment worth $1,306.

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