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TheStreet Open House

Why Franchises Are Good for Investors

Stocks in this article: MCDKKDPZZIDINAFCEWINAJACK

Sonic Corp. (SONC)
Company Profile: Sonic operates and franchises a chain of quick-service drive-in restaurants in the U.S.
Share price return: 12.7% this year
Franchise locations: As of Aug. 31, Sonic had 3,572 drive-in restaurants, of which 3,117 were franchises.
Revenue from franchises: Franchise revenue accounted for 23% of Sonic's total revenue last quarter. Sonic reported first-quarter revenue of $26.5 million from franchise drive-ins, compared with $86.4 from company-owned locations.
Franchise costs: Sonic says the franchise fee for a restaurant is $45,000, with a total initial investment ranging from $710,000 to $3 million. There are also royalty fees that run between 4% and 5%, and advertising fees of nearly 6%. Depending on the number of locations owned, franchisees are required to have liquidity of $1 million and net worth of $1 million.
Analyst view: Five research firms have a "buy" rating on Sonic, including RBC Capital Markets and Piper Jaffray. Another seven analysts say investors should hold the stock, while four researchers suggest dumping shares.

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