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Ilene is an editor at Phil's Stock World, Market Shadows and other financial publications. Her educational background is in biology, pathology and law. After working in biochemistry and pathology during her graduate years, she attended Law School at Loyola. She practiced law in a number of... More
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  • A Not-So-Super Sonic 1 comment
    Mar 28, 2013 3:56 PM | about stocks: SONC
    A Not-So-Super Sonic

    Courtesy of Paul Price

    Shares of drive-in restaurant operator Sonic (NASDAQ:SONC) have been on a roll (pun intended). The stock rallied from a 52-week low of $6.84 to close at $12.88 on Wednesday, 3/27. Adjusted earnings for the end of the February quarter came in at 5-cents versus 3-cents a year earlier in the seasonally weakest (winter) quarter for this open-air eatery. Same store sales were flattish although 2012 was a leap year with one extra selling day.

    Should we be savoring Sonic's positive momentum or digesting its gains?

    Quick service restaurants in general face some major headwinds: minimum wage increases, Obamacare-related costs, and the FICA tax holiday reversion. These factors conspire against profitability. Sonic, in particular, has not shown very good results since FY 2008 (ended Aug. 31, 2008).

    Click to enlarge:

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    From FY 2008 through FY 2012, total sales dropped 32.2%. EPS declined by 40%. The share price plunged from a peak of $26.20 in 2007, bottomed and bounced multiple times in 2008, 2009, 2010, 2011 and 2012 to annual highs of $10.90 - $13.10. Each advance proved to be a false start. I wouldn't bet that this time will be different.

    (click to enlarge)

    Company officers have chosen to sell at prices below today's. Director Federico Pena exited almost $290,000 worth at an average price of $11.58 just days ago. The last insider buy was relatively small and took place more than eight months ago.

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    (click to enlarge)

    Sonic has a weak balance sheet and no dividend to support its price.

    Value Line uses a financial strength rank of 'C' as their lowest other than outright default.

    (click to enlarge)

    Wall Street research has been busy cheerleading to explain Sonics recent share price action. Barrons just endorsed it as a good buy, while noting it was no longer cheap.

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    Why pay 18.4 times the FY 2013 estimate of $0.70 for a serial disappointer in an industry with unfavorable forces working against its success?

    If long SONC, I'd take profits.

    Disclosure: No position

    Stocks: SONC
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  • Paul Price
    , contributor
    Comments (1563) | Send Message
    Eat the burgers, shun the shares.
    30 Mar 2013, 03:45 PM Reply Like
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