Back to top

Bear of the Day

SONIC Corporation (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.

Estimates Cut

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).

More Stocks to Sell. Now.

Beyond our Bear Stock of the Day, today's list of 220 Zacks Rank #5 Strong Sells demand even more urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. Many appear to be sound investments but, since 1988, such stocks have actually performed more than 11X worse than the S&P 500.

See today's Zacks ""Strong Sells"" absolutely free >>.

Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »