On Thursday, Sonic Auto (NYSE: SAH) saw its price target reduced to $55.00 from $65.00 by CFRA, while the firm kept a Hold rating on the stock. The adjustment follows Sonic Auto's third-quarter performance, which did not meet expectations. The company's adjusted earnings per share (EPS) for the quarter was $1.26, a significant decline from $2.02 in the same quarter last year, and fell short of the consensus estimate of $1.43. This earnings miss was largely attributed to a weaker-than-anticipated top line, with revenue dropping 4% to $3.49 billion, missing the consensus by $60 million. Additionally, the gross margin saw a contraction of 40 basis points to 15.6%.
CFRA's revised 12-month price target is based on a forward price-to-earnings (P/E) ratio of 9.3x, which applies a discount to Sonic Auto's 10-year average forward P/E of 9.5x. The firm also lowered its adjusted EPS estimates for the company to $5.40 from $5.70 for 2024, and to $5.90 from $6.20 for 2025. The downgrade in the price target and EPS estimates reflects the firm's cautious outlook on Sonic Auto's financial performance.
Despite the disappointing results, CFRA maintains a Hold rating on Sonic Auto shares. The firm cites the company's valuation relative to what it considers higher-quality peers in the auto dealership sector as a reason for not downgrading the stock further. CFRA suggests that while auto sales and margins have the potential to improve in the upcoming quarters due to better affordability and declining interest rates, there are other auto dealership stocks that currently present a more attractive investment proposition.
Sonic Auto's recent performance highlights the challenges faced by the auto dealership industry. The company's lower-than-expected revenue and shrinking gross margin indicate a tough environment, possibly influenced by economic factors affecting consumer spending and industry-specific trends. CFRA's stance on the stock suggests a neutral outlook, signaling that investors may want to exercise caution with respect to Sonic Auto's shares in the near term.
In other recent news, Sonic Automotive (NYSE:SAH)'s earnings per share of $1.26 matched the expectations of JPMorgan, which held a neutral stance on the company. The company's overall EBITDA exceeded the firm's projections, thanks to a mix of higher gross profit and reduced selling, general, and administrative expenses. The earnings beat was primarily due to better-than-expected results from both the franchise and EchoPark segments.
On the other hand, Sonic Automotive faced challenges due to a CDK outage in July, which had a significant pre-tax impact in the third quarter. Despite this, the underlying third-quarter EPS was approximately $1.65.
In terms of operations, Sonic Automotive's franchise business saw a gross profit advance with new unit sales up 2% and parts and service profit growth at 8%. EchoPark's performance was noted for its 2% year-over-year increase in same-market unit sales, with total units reaching 17.8 thousand.
Meanwhile, Stephens initiated coverage on Sonic Auto, assigning an Equal Weight rating and setting a price target of $64.00. The firm sees potential for earnings growth across all three of Sonic Auto's divisions—franchised dealerships, EchoPark, and powersports.
Needham also initiated coverage on Sonic Automotive, giving it a Buy rating and setting a price target of $73.00, highlighting the potential of EchoPark.
InvestingPro Insights
To complement the analysis provided in the article, recent data from InvestingPro offers additional context on Sonic Automotive's financial position and market performance. Despite the challenges highlighted in the CFRA report, InvestingPro data shows that Sonic Automotive has maintained profitability over the last twelve months, with a P/E ratio of 10.55, which aligns closely with CFRA's forward P/E estimate.
InvestingPro Tips reveal that while Sonic Automotive operates with a significant debt burden, management has been aggressively buying back shares, potentially signaling confidence in the company's long-term prospects. This strategy could be seen as an attempt to create shareholder value despite the current headwinds.
Additionally, Sonic Automotive has raised its dividend for 3 consecutive years and has maintained dividend payments for 15 consecutive years, with a current dividend yield of 2.16%. This consistent dividend policy may appeal to income-focused investors, even as the company navigates through a challenging period.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips that could provide further insights into Sonic Automotive's financial health and market position.
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