The firm upgraded the fast food chain's rating believing it should see higher sales and margins in the coming quarters and because of the recent pull back in shares.
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TheStreet Ratings team rates SONIC CORP as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate SONIC CORP (SONC) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, increase in net income and notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 70.58% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, SONC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- SONIC CORP has improved earnings per share by 16.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, SONIC CORP increased its bottom line by earning $0.64 versus $0.61 in the prior year. This year, the market expects an improvement in earnings ($0.83 versus $0.64).
- The net income growth from the same quarter one year ago has significantly exceeded that of the Hotels, Restaurants & Leisure industry average, but is less than that of the S&P 500. The net income increased by 14.8% when compared to the same quarter one year prior, going from $3.58 million to $4.11 million.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, SONIC CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.8%. Since the same quarter one year prior, revenues slightly dropped by 1.3%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full analysis from the report here: SONC Ratings Report