Shares of Sonic Automotive (SAH) have been strong performers lately, with the stock up 13.8% over the past month. The stock hit a new 52-week high of $46.5 in the previous session. Sonic Automotive has gained 46.7% since the start of the year compared to the 28.8% move for the Zacks Retail-Wholesale sector and the 17.2% return for the Zacks Automotive – Retail and Whole Sales industry.
What’s Driving the Outperformance?
The stock has a great record of positive earnings surprises, as it hasn’t missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on July 30, 2020, Sonic Automotive reported EPS of $0.64 versus consensus estimate of $0.31.
For the current fiscal year, Sonic Automotive is expected to post earnings of $2.95 per share on $9.85 billion in revenues. This represents a 11.32% change in EPS on a -5.79% change in revenues. For the next fiscal year, the company is expected to earn $3.66 per share on $11.24 billion in revenues. This represents a year-over-year change of 23.93% and 14.1%, respectively.
Sonic Automotive may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.
Sonic Automotive has a Value Score of A. The stock’s Growth and Momentum Scores are A and B, respectively, giving the company a VGM Score of A.
In terms of its value breakdown, the stock currently trades at 15.4X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 9.4X versus its peer group’s average of 7.9X. This isn’t enough to put the company in the top echelon of all stocks we cover from a value perspective.
We also need to consider the stock’s Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Sonic Automotive currently has a Zacks Rank of #1 (Strong Buy) thanks to rising earnings estimates.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Sonic Automotive meets the list of requirements. Thus, it seems as though Sonic Automotive shares could still be poised for more gains ahead.
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