July 19, 2024


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Bull of the Day: Sonic Automotive (SAH)

3 min read

Sonic Automotive, Inc. (SAH) is seeing car buyers return with a vengeance this summer. This Zacks Rank #1 (Strong Buy) saw used vehicle sales turn green in June.

Sonic is one of the largest auto retailers in the United States with 86 franchised dealerships and 10 EchoPark pre-owned dealerships in 12 states and 21 major metropolitan markets.

It carries 20 different automotive brands with the majority of its dealerships in the luxury and import brands.

Used Car Sales are Hot in the Summer of 2020

On June 16, Sonic updated its business guidance for April, May and June through June 16.

Volumes have been better each month during that time.

At the franchised dealerships, used vehicles unit sales volume was down 32% in April, down 8% in May but were up 7% in June.

EchoPark’s used vehicle unit sales volume also showed the same. April was down 36%, May was down 3% but June was up 18% through June 16.

It’s other segments also saw improving business with New Vehicle Unit Sales Volume at the franchised dealers declining 40% in April, 20% in May and just 10% in June.

Similarly, Parts and Service Gross Profit improved from a decline of 43% in April, to 27% in May and a decline of 10% in June.

“Both new and used vehicle unit sales volumes, as well as fixed operations revenues, continue to meet or exceed our forecast at the outset of the pandemic, with used vehicle sales actually higher than last year in both the franchise and EchoPark locations in June,” said David Smith, CEO of Sonic and EchoPark.  

2020 Earnings Estimates Move Higher

Earnings estimates fell off a cliff several months ago when COVID-19 hit. The 2020 Zacks Consensus fell from $2.08 down to $0.96.

But analysts were too bearish. With the reopening of the economy continuing, and Sonic confirming that business is improving, the analysts have been raising their full year estimates.

3 estimates were raised in the last 60 days and 1 in the last month for 2020 which pushed the Zacks Consensus up to $1.40 from $0.96 just two months ago.

That is still an earnings decline of 47.2% as it made $2.65 a year ago.

But it’s moving in the right direction: up.

Shares Soared After the Coronavirus Sell-Off

Like most stocks, Sonic saw its shares take a huge hit in February and March during the coronavirus sell-off.

But they have also had a furious recovery rally, gaining 137.8% over the last 3 months.

Year-to-date they’re now up just 1.9%.

What’s next?

Competitors are also reporting improving business metrics with sales rising in May and June including Penske Automotive Group (PAG).

Sonic shares aren’t particularly cheap, thanks to the earnings slide. They trade with a forward P/E of 22.7.

But for investors looking for a recovery play, Sonic Automotive is one to keep on the short list.

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