(SONC - Snapshot Report
) had been crushing it in the burger wars for several years. But this Zacks Rank #5 (Strong Sell) just warned about its fourth quarter results.
Are burgers going out of favor in America?
Sonic is America's largest drive-in restaurant chain with 3500 locations. For over 60 years it has served customers and now sees about 3 million customers a day.
Warned on the Fourth Quarter
On Sep 27, Sonic issued preliminary results for its fiscal fourth quarter which ended Aug 31 and it wasn't good.
Same store sales fell 2% with a decrease of 3% at company owned drive-ins and 1.8% at franchise drive-ins.
The disappointing sales was the result of lower-than-expected traffic, as consumers spent less eating out, and aggressive competition in the burger industry. There are a LOT of burger chains now, all competing for the same dollars.
Still, the company continues to expand. It opened 53 new drive-ins in fiscal 2016.
The analysts didn't like what they heard as 8 estimates were cut for fiscal 2016 and 8 were also cut for next year.
The fiscal 2016 Zacks Consensus Estimate fell to $1.29 from $1.33. that's still earnings growth of 17.4% compared to the prior year.
The fiscal 2017 Zacks Consensus Estimate fell $0.10 to $1.41 from $1.51. While you never want to see estimate cuts, it still results in 2017 earnings growth of 9.4%.
A Buying Opportunity
Shares sold off on the news but they've been weak in 2016.
The stock is down 19.5% year-to-date.
But is it cheap?
Sonic now trades with a forward P/E of 18.4. That's well below its recent high. For a growth stock, it's not expensive.
But the earnings estimate cuts put this stock in the short-term doghouse.
For investors still interested in the burger stocks, both Shake Shack (SHAK - Snapshot Report) and Wendy's (WEN - Analyst Report) are Zacks Rank #2 (Buys).
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