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Longbow Research Is Buying Into Sonic On 'Unique' Model

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  • Sonic Corporation (NASDAQ: SONC) shares are down 7 percent year-to-date, and have remained below the $35 mark since April.
  • Longbow Research’s Alton Stump upgraded the rating on the company to Buy, with a price target of $34.
  • Mentioning that the company has a differentiated model, Stump expressed confidence in its ability to generate mid to high teen earnings growth.

Expressing optimism regarding Sonic’s short-term and long-term growth prospects, analyst Alton Stump said, “Sonic possesses a unique drive-in model that differentiates the company among its largely homogenous domestic restaurant peers.”

Stump enumerated the following changes taking place at the company:

  1. The company’s franchised network is expected to generate incremental same-store sales from the new digital Point of Personalized Service [POPS] during FY16-Fy17. This could be partly driven by the pending integration of mobile technology with the new menu boards.
  2. The recent comp outperformance by franchised Sonic restaurants versus company-owned locations does not appear to be a major concern. Company-owned stores have higher exposure to more saturated markets and “are also located more prevalently in oil field regions.”
  3. Sonic is likely to achieve mid to high teen+ earnings growth every year for several years, positioning the company in “the upper tier among its major restaurant peers.”
  4. Compared to most of the company’s peers with similar heavily-franchised systems, Sonic’s shares are currently trading at a 20-30 percent discount on a forward EV/EBITDA basis.

“As a concept with substantial exposure to mid- to low-end income consumers, Sonic is well positioned to continue to benefit from an improved domestic consumer spending power environment,” Stump wrote.

Latest Ratings for SONC

DateFirmActionFromTo
Mar 2017Canaccord GenuityDowngradesBuyHold
Dec 2016Cowen & Co.Initiates Coverage OnMarket Perform
Dec 2016Longbow ResearchDowngradesBuyNeutral

View More Analyst Ratings for SONC
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Posted-In: Longbow Research VetrAnalyst Color Upgrades Analyst Ratings

 

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