Sonic shares drop as analyst starts at 'Neutral'

Sonic Corp. shares dropped to a 52-week low Friday after a Banc of America analyst said the fast-food chain faces near-term challenges including higher dairy costs and a rise in the federal minimum wage.

Analyst Joseph T. Buckley initiated coverage on the stock with a "Neutral" rating and a $16 price target.

Shares fell 57 cents, or 4.1 percent, to close at $13.42. The stock hit a new year low of $13.10 earlier in the day. Shares have traded between $13.52 and $26.19 over the past 52 weeks.

Dairy costs have risen in the past year due to overseas demand and high corn costs. Because corn is used to make animal feed, when corn prices rise farmers charge more for animal byproducts like milk and cheese. Meanwhile, the second increase of the federal minimum wage in as many years will take effect July 24. The minimum wage will rise to $6.55 an hour from $5.85 per hour.

Buckley said Sonic raised its prices in 2007 to coincide with the first increase. He added the higher menu prices may be contributing to slower traffic.

He added that the company's long-term earnings-per-share target of 18 percent growth "seems too optimistic."

Sonic did not immediately return phone calls seeking comment.