Oklahoma-based restaurateur Sonic Corp. (SONC - Snapshot Report) recently authorized a new stock repurchase program, thereby maintaining the trend of returning wealth to its shareholders from time to time, depending on market conditions. Under this program, the company is authorized to repurchase up to $40.0 million of its common stock by Aug 31, 2014.
Earlier, in Jan 2013, the company authorized a repurchase program of up to $55.0 million of its common stock, which is scheduled to expire on Aug 31, 2013. About $18.4 million is available for repurchase under this stock repurchase program.
Prior to this, in Aug 2012, the company’s board of directors had allocated up to $40.0 million for common stock repurchase through Aug 31, 2013 and in Oct 2011, this chain of drive-in restaurants approved up to $30.0 million for common stock repurchase through Aug 31, 2012.
The persistent increase in share buyback authorization reflects the company’s confidence in its fundamentals. At the same time, the share buyback will help the company reduce outstanding share count, thereby increasing earnings per share and return on equity. Management expects the latest authorization to benefit earnings in fiscal 2014.
Apart from bolstering shareholder value, this strategic move will also lift the relatively undervalued share price. Moreover, the step is also a perfect medium for the use of excess cash.
This Zacks Rank #3 (Hold) company is gradually moving in a positive direction. Increasing focus on franchising, expansion of drive-in facilities, comps improvement, execution of a point-of-sale system and effective utilization of cash are Sonic’s long-term goals.
At the end of third-quarter fiscal 2013, the company had cash and cash equivalents worth $53.5 million. Long-term debt due after one year stood at $436.1 million. Last month, it also efficiently refinanced some of its debt at a lower rate and lowered interest expenses. Management expects to generate free cash flow of approximately $45—$50 million in fiscal 2013, which will help fund this new repurchase program and pay down debt.
Some other stocks in the restaurant sector worth a look are The Wendy’s Co. (WEN - Analyst Report), Domino’s Pizza Inc. (DPZ - Analyst Report) and Burger King Worldwide Inc. , all carrying a Zacks Rank #2 (Buy).