As burger chains go, Sonic (NASDAQ:SONC) is pouring on the cheese. The drive-in fast food chain posted earnings of $0.24 a share for its fiscal second quarter. That's a 23% improvement over last year and a penny better than the company's prior expectations.
Surprised? You shouldn't be. Earlier this month, rival Checkers (NASDAQ:CHKR) posted estimate-thumping results. And as outfits like McDonald's (NYSE:MCD), Burger King, and Wendy's (NYSE:WEN) back away from their dollar menus in favor of attractive premium salads, there is more room for the bargain chains with low overhead.
"Chains like In-N-Out, Sonic, and Checkers should continue to thrive in 2004 as the burger heavies play out their pricing war truce," we wrote earlier this month. "These smaller box concepts were built for low overhead efficiency and low prices are human nature."
Sonic is expecting earnings growth to slow modestly for the full year to 16% to 18%. But is Sonic a bargain at 23 times this year's earnings targets? As a quality chain, the company has earned a premium; however, with Checkers trading at just half Sonic's multiple, value hunters might want to check that one out first.
Either way, the argument that all fast food chains can thrive in this environment may be valid. Mickey D's and its larger peers are benefiting from healthier markups given their specialty products. Sonic and Checkers will be able to sell even more of the cheap stuff and make it up in volume.
All in all, it's a tempting sector. The most difficult choice might be where to take that first bite.
Do you think bargain drive-in and drive-thru restaurants like Sonic and Checkers stand a chance against the golden arches? Will they always be confined to doling out burger eats, or can premium salads play out on that level, too? All this and more -- in the McDonald's discussion board. Only on Fool.com.
Longtime Fool contributor Rick Munarriz may be hungry but he does not own shares in any companies mentioned in this story.
