On Thursday morning, drive-in fast-food chain Sonic
What analysts say:
- Buy, sell, or waffle? Seventeen analyst firms cover Sonic today. Eleven of them carry a buy rating on the stock, and the other six are holding. In our Motley Fool CAPS hive mind of 30,000 raters, it's a four-star stock sniffing the five-star level, based on input from over 200 users.
- Revenues. The company's own forecast is calling for $205 million to $209 million. $207 million would leave the average analyst feeling satisfied (and 11% fuller than last year).
- Earnings. Management guidance points to a $0.30-$0.31 per-share range, up from $0.27 last year. The Wall Street consensus skirts the upper end of that field.
What management says:
Management keeps a 2%-4% long-term goal in mind for same-store growth, and CEO Cliff Hudson was happy to report meeting that goal last quarter, despite harsh weather conditions. In fact, two of those three months exceeded the top end of the range.
His outlook on coming quarters is positive, having just completed the installation of credit card readers at each drive-in stall and with the profitable summer months front and center.
What management does:
Operations are very stable, with gross and operational margins virtually unchanged over the last two years. Net income and free cash flow metrics are suffering from the company taking on about $500 million in new debt to finance its equipment upgrades and expansion strategy. Judging by the decelerating revenue growth, Sonic better show us that those improvements are paying off this summer.
|
11/2005 |
2/2006 |
5/2006 |
8/2006 |
11/2006 |
2/2007 |
|
|---|---|---|---|---|---|---|
|
Gross |
52.4% |
52.4% |
52.6% |
52.8% |
52.9% |
52.7% |
|
Operating |
23.0% |
22.7% |
23.4% |
23.7% |
23.6% |
23.4% |
|
Net |
11.2% |
11.2% |
12.0% |
11.4% |
11.0% |
9.8% |
|
FCF/Revenue |
7.4% |
7.8% |
7.7% |
5.9% |
4.7% |
3.6% |
|
Y-O-Y Growth |
11/2005 |
2/2006 |
5/2006 |
8/2006 |
11/2006 |
2/2007 |
|---|---|---|---|---|---|---|
|
Revenue |
14.4% |
13.1% |
12.1% |
11.3% |
10.6% |
9.7% |
One Fool says:
The overall strategy looks sound, and card readers at the ordering spots make the customers' lives a bit easier. It's nearly a requirement these days, as many of us simply don't use cash much anymore, and rollerskating back to the in-store card reader removes some of the "fast" in "fast food." So it's not exactly a competitive advantage -- everyone else is doing it too -- but at least Sonic isn't falling behind McDonald's
If Sonic does have a unique advantage, it would be the massive selection of milk shakes, slurries, floats, and other chilly beverage variations. This company knows that thirsty summers bring in the bacon, and it caters to every taste on that front. The spring should give us the first taste of what easy payments and decent weather can do for the top and bottom lines. And oh, great -- now I'm hungry.
Fool contributor Anders Bylund holds no position in any of the companies discussed here, and he can't find a Sonic while he's stuck in Guatemala City. You can check out Anders' holdings if you like, and Foolish disclosure will help you find the road ahead.
