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Bull of the Day: Sonic Automotive (SAH)

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One of the largest auto retailers in the U.S., Sonic Automotive (SAH - Free Report) is a company with dealership franchises that sell new and used cars; the sale of replacement parts; vehicle maintenance, warranty, paint and repair services; and arrangement of extended warranty contracts.

Q1 Earnings Cement Growth Promise

Earnings of 62 cents per share and revenues of $2.6 billion easily beat the Zacks Consensus Estimate.

But the biggest surprise of the quarter came from its EchoPark pre-owned vehicle retail chain. Even though it only accounts for about 10% of Sonic’s total sales, the company expects EchoPark to bring in over $1 billion in revenue this year; it generated revenue of $249.6 million in Q1, increasing 90% year-over-year.

EchoPark also became profitable in Q1, bringing in profits of $0.2 million before taxes.

“As we expand our footprint into other areas across the country, we believe EchoPark will exceed the overall volumes and profitability of our franchised dealerships,” said CEO David Smith.

Sonic doesn’t provide guidance, but analysts expect the company’s top line to grow 70% this year and bottom line to increase 15%.

SAH is Soaring

 

Shares of Sonic soared this year, jumping more than 100% compared to the S&P 500’s return of roughly 15%.

Earnings estimates have since been rising, and the stock is now a Zacks Rank #1 (Strong Buy).

For the current fiscal year, four analysts have revised their earnings estimate upwards in the last 60 days, and the Zacks Consensus Estimate risen 18 cents from $2.07 to $2.25. 2020 looks pretty strong too, with earnings and revenue expected to show positive year-over-year growth.

SAH currently trades at 11.8X its forward full-year earnings estimates, a discount compared to the broader Retail-Wholesale Market. If Sonic can continue to capitalize and expand on EchoPark, investors can likely expect to see further upside to shares.

Thanks to EchoPark’s soaring sales, the future is looking promising for Sonic Automotive. If you’re an investor searching for a broader retail sector stock to add to your portfolio, make sure to keep SAH on your shortlist.

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