A potential earnings short-squeeze trade in the restaurants complex is Sonic (SONC), which is set to release numbers on Wednesday after the market close. This company operates and franchises chain of drive-in restaurants (Sonic Drive-Ins) in the U.S. Wall Street analysts, on average, expect Sonic to report revenue of $681.10 million on earnings of 13 cents per share.
Sterne Agee has upgraded shares of Sonic this morning from a neutral to a buy rating with an $11 price target. Sterne Agree comments, "The primary catalyst for our upgrade is that we believe the recent improvements in SSS is likely sustainable over the next several quarters given core product quality improvements, menu innovation and new advertising. In addition, we view the roll-out of a new POS system and the development of a new lower-cost prototype as longer-term positives. We also note an attractive FCF yield of 13%."The current short interest as a percentage of the float for Sonic is rather high at 7.3%. That means that out of the 85.59 million shares in the tradable float, 3.26 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 21.4%, or by about 729,000 shares. From a technical perspective, SONC is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock formed a double bottom in April to mid-May at around $6.84 to $6.88 a share. After forming that bottom, shares of SONC have soared and trended up toward a recent high of $8.95 a share. During that move, shares of SONC have consistently made higher lows and higher highs, which is bullish technical price action. That move has now pushed SONC within range of a near-term breakout trade. If you're in the bull camp on SONC, I would look for long-biased trades if after earnings it triggers a break out above some past overhead resistance at $9.82 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 721,352 shares. If we get that action, then SONC could re-test and possibly take out its 52-week high of $11.34 a share if the bulls gain full control of this stock post-earnings. I would simply avoid SONC or look for short-biased trades after earnings the stock fails to trigger that breakout, and then moves below some near-term support at $8.50 a share with high-volume. If we get that action, then SONC should setup to re-test its next significant support levels at $7.91 to $7.73 a share if the bears smack this stock lower post-earnings.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV