Sonic Automotive Upgraded to Buy at Goldman

Sonic Automotive (SAH) was upgraded by Goldman Sachs, which Reuters says is because they (Goldman) expect “the automotive retailer (Sonic) to adopt sharper fiscal discipline under its new chief financial officer and saw Sonic delivering significant improvements in its cost structure.” The analysts at Wachovia, Merrill Lynch and I have similarly articulated this view since this summer. It is nice to see Sonic beginning to gain some “respect” in the public markets. But all of that really means nothing over the long run.

Sure, we can give management an “atta boy” now and again, and Wall Street analysts (and even dudes like me) will fall in and out of love with a stock. But what really matters is that management executes on its commitment to deploy shareholder capital prudently and develop a superior store model. It won’t be a smooth process with the company exceeding (or even meeting) estimates every quarter (although it is always nice when it works out that way). So the efforts being undertaken by management to make the company’s stores more cost competitive and customer centric is what leaves me excited about Sonic’s prospects.

This is what should drive your investment decision. It doesn’t really matter what the “Wall Street Experts Think,” we just follow the bouncing ball (just like you). What matters is trying to see something the “experts” do not see, and therefore generating superior investment returns. And in this regard, I continue to think Sonic’s stock affords such an opportunity.

SAH 1-yr chart: