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Sonic Automotive (SAH)
Rarely
will a stock that misses
earnings estimates be selected as a momentum rank-buy; but given the details of the
report,
Sonic may have upside from these levels.
Sonic
has held above its 200 day
moving average and been in an upward trend since October.
Yesterday’s selloff following an earnings
miss sent shares down roughly 9%, which may actually attractive buyers
at advantageous prices and
allow the momentum in this stock to continue. With a
P/E of less than 10, a PEG
ratio of 0.6 and relatively strong growth since the recession, Sonic’s
shares
may have value here.
Automotive
sales have been on the
rise over the past several months and the trend seems to be continuing
according to sources.
Company
Description & Developments
Sonic operates over 100 dealerships spread across 15 states and in 26
major
metropolitan markets, representing approximately 30 different
automotive brands
with the majority of the dealerships being luxury and import brands
with high
exposure to Honda (whose sales have been comparatively lackluster). Sonic Automotive, Inc. is a Fortune 500 company and
part of
the Russell 2000 Index. They are among
the largest automotive retailers in the United States.
SAH reported Q12012 earnings of $19.5 million which was a 24%
increase over the prior year. Earnings per share increased 22% to $0.33
compared to $0.27 in the prior year quarter.
- Total
Q1 revenues up 9.3% over prior year quarter - New
vehicle retail revenue up 12.1% in Q1 - Used
vehicle revenue up 9.0% for the quarter - Parts
and Service revenue up 5.1% in Q1 - SG&A
to gross profit % down 30 bps to 79.4% for the quarter
As you can see, the earnings were far from devastating, but
they did miss
estimates. Combining a miss with the broad market selloff sent shares
sharply
lower.
Financial
Profile
SAH is a small-cap (944 million) company that is trading at about 10
times forward
(expectations for next quarter) earnings. SAH
became a Zacks Rank 1 strong buy
on March 7th. We may see the
stock drop to a Rank 2 or 3 if analysts make negative adjustments after
this
report. SAH
is expected to earn $1.66 in
FY2012 according to the Zacks Consensus Estimate.
Earnings Estimates
On April 23rd, Sonic reported earnings that missed estimates by 1
cent (3%).
But
in the press release Jeff Dyke, EVP
of Operations noted, “We achieved record first quarter revenues of
nearly
$2 billion with our current complement of stores. Our new vehicle
retail unit
volume, which increased 11.2% versus the first quarter of 2011,
outpaced the
new vehicle retail industry volume increase. We are excited about the
possibilities of further improvement resulting from our continued focus
on
efficient execution of our selling and customer service processes.”
B.
Scott Smith went on to say “We
are pleased with this quarter’s results. Our overall profitability
increased
significantly from the prior year quarter due to our strong revenue
growth”
This
positive commentary further
supports the thesis that this selloff may be overdone, but of course
only the
markets can determine that for sure.
Expectations
are for SAH to generate
$0.40 in income the coming quarter. In the coming days, we
will
most likely be seeing revisions from the analysts that cover the stock
as they
update their data and models.
Market Performance &
Technicals
As stated, SAH has been trending higher since hitting a low of $10.11
in October
2011. Since then the stock has
maintained trend above its 200 day moving average, which now stands at
$15.11. Look for this area to be support for the
stock.
In
the past week alone, the SAH has
given back roughly 16% of its value. SAH has exceeded the
S&P 500’s
performance by 29% in the past year and almost 6% in the past 3
months.
Given the recent pullback, it’s now at parity
with the major markets over the past month.
Jared
A Levy is the
Momentum Stock Strategist for Zacks.com. He is also the Editor in
charge of the
market-beating Zacks
Whisper Trader Service.
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