Why Lithia Motors Inc. Shares Revved Up Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Lithia Motors  gained more than 12% Monday after the car dealership chain announced the acquisition of DCH Auto Group.  

So what: Lithia said it would pay $362.5 million to take control of DCH, which gives the buyer 27 additional dealerships in California, New Jersey, and New York, bringing its grand total to 128. Management expects the new locations to deliver additional income of $0.12 to $0.14 per share this year, and $0.65 to $0.75 per share a year after that. DCH's management team will remain in control of the DCH stores, and the deal is expected to close in the fourth quarter of this year.

Now what: In its press release, Lithia explained that the new dealerships will help it build out its metro market strategy with dealerships in the New York and Los Angeles areas.  Prior to the DCH acquisition, Lithia had no presence on the East Coast, and Lithia CEO Bryan DeBoer called DCH an "ideal strategic partner" for the eastern United States. Considering the impact the new stores are expected to make, the deal seems like a smart move, as DCH should add close to $20 million in profit per year. The DCH acquisition is just the latest purchase for Lithia, which a few days earlier added two dealerships in Portland, Oregon. Don't be surprised to see the company pick up some more new stores in the near future.

Will this stock be your next multibagger?
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

The article Why Lithia Motors Inc. Shares Revved Up Today originally appeared on Fool.com.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story