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Sonic May Take Longer To See Inflection In Top- And Bottom-Line Results

Sonic SONC Might Take Longer To See Top- And Bottom-Line Inflections

There are at least two catalysts for investors' hurt sentiments on Sonic CorporationSONC, which led to a drop of more than 18 percent. The first is the downbeat forecast for the fiscal year 2017, and the second is the resultant downgrade of the stock.

Stephens believes Sonic will take more time to see growth in both the top and bottom lines. The tepid forecast led analyst Will Slabaugh to adjust his estimations for the fiscal year, thus resulting in the downgrade of the stock from an Overweight to Equal-Weight rating. The price target on the stock has also been reduced from $32 to $26.

The brokerage expects system-wide SSS to drop 1.3 percent in the fiscal year 2017 compared to the earlier estimation of 1.8 percent growth. As a result, adjusted EPS estimation has also been reduced from $1.41 to $1.25.

The revision comes on the back of SSS falling by 2 percent in the fourth quarter compared to the consensus expectations of 0.5 percent growth and Stephens' 2.5 percent fall.

The company commenced its SSS outlook of -2–0 percent for the fiscal year 2017 with EPS expected to drop between 7 percent and 0 percent. This is sharply lower than the consensus estimation of 12 percent growth.

In a research note, the brokerage said, "While we have difficulty reaching the low end of this guidance range, we would note that it is heavily reliant on the cadence of the refranchising process and associated margin improvement. We were also surprised to see capex guidance of $40 million to $45 million and G&A of $85 million to $86 million come in well ahead of our model."

At last check, the stock was down 18.12 percent at $21.69.

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DateFirmActionFromTo
Oct 2016Telsey Advisory GroupDowngradesOutperformMarket Perform
Sep 2016BarclaysMaintainsUnderweight
Sep 2016JefferiesMaintainsHold

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