On Thursday, JPMorgan retained its Neutral stance on Sonic Automotive (NYSE: NYSE:SAH) shares with a steady price target of $75.00.
The firm's analysis indicated that the company's earnings per share (EPS) of $1.26 matched JPMorgan's expectations and showed a slight deviation from the consensus estimate of $1.44. Sonic Automotive's overall EBITDA outperformed JPMorgan's projections by approximately 4%, supported by a mix of higher gross profit and reduced selling, general, and administrative expenses (SG&A).
The earnings beat was attributed to better-than-anticipated results from both the franchise and EchoPark segments. The franchise business contributed $115 million in EBITDA, including stock-based compensation, versus an expected $111 million. EchoPark exceeded forecasts with $9 million compared to the predicted $7 million.
However, the company faced challenges due to a CDK outage in July, which had an estimated pre-tax impact of $15 million in the third quarter, equating to roughly $0.32 per share on a non-GAAP basis. Excluding the CDK incident and an unusually high tax rate, the underlying third-quarter EPS was approximately $1.65.
In terms of operations, the franchise business saw a gross profit advance with new unit sales up 2% against an anticipated 6% decline and parts and service profit growth at 8%, 2% higher than expected. Despite this, new, used, and finance and insurance gross profit per unit (GPU) were all marginally below JPMorgan's estimates.
The used unit same-store sales dropped by 2%, missing expectations by about 1%. The report highlighted strong SG&A leverage as a key factor in the earnings beat, with franchise SG&A to gross profit ratio at 71.6% compared to the 72.4% anticipated.
EchoPark's performance was noted for its 2% year-over-year increase in same-market unit sales, with total units reaching 17.8 thousand versus the 17 thousand forecasted by JPMorgan.
The retail plus finance and insurance GPU for EchoPark was approximately $3.1 thousand in the third quarter, around $60 above expectations. Sonic Automotive now expects EchoPark EBITDA to be in the range of $7-8 million, up from the prior $6 million projected by JPMorgan.
JPMorgan concluded that despite the headwinds from the CDK outage, the BMW (ETR:BMWG) stop-sale, and hurricanes, the results were considerably better than anticipated. This performance sets a positive foundation for fourth-quarter earnings in 2024 and into 2025, where the firm sees potential for earnings to surpass consensus estimates.
Given the stock's recent underperformance, with a 600 basis point decline over the past three months, JPMorgan anticipates a recovery in Sonic Automotive shares starting today and continuing over the next week, as the third-quarter results are expected to prompt upward revisions.
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