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On Wednesday, Needham analysts showed continued confidence in Sonic Automotive Inc . (NYSE: NYSE:SAH), raising their price target on the company’s stock to $100, up from the previous $74, while maintaining a Buy rating. The revision reflects an optimistic outlook on the company’s performance, particularly within its franchise operations. The stock, currently trading at $72.02, has shown strong momentum with an 18% gain year-to-date. InvestingPro data reveals the company has delivered impressive returns over multiple timeframes, with additional insights available in the comprehensive Pro Research Report.
The analysts highlighted Sonic Automotive’s effective execution on the franchise side of the business as a key factor for the upgraded target. They adjusted the standalone SAH multiple to align more closely with peers, moving away from a conservative stance based on cautious estimates, particularly concerning new vehicle Gross Profit per Unit (GPU). According to InvestingPro analysis, the company currently trades at a P/E ratio of 12.45x and maintains profitable operations, though it operates with a significant debt burden as evidenced by its debt-to-equity ratio of 4.03.
Sonic Automotive’s Echo Park, a segment focusing on pre-owned vehicles, was noted as a significant but underappreciated growth lever. Despite a temporary setback in the fourth quarter due to inventory issues, which have since been resolved, the analysts see potential for growth. They believe that the market has not fully recognized Echo Park’s value, even considering a revised trajectory for unit sales and earnings.
The new $100 price target is based on an enterprise value of $8.1 billion, which includes $7.7 billion for SAH’s franchise dealerships. This valuation applies a 10x multiple to the forecasted FY25 standalone SAH adjusted EBITDA, an increase from the prior 7.5x. Additionally, $450 million is attributed to EchoPark, now valued at 10x the forecasted FY26 adjusted EBITDA, a decrease from the previous 15x multiple. The company’s current EV/EBITDA ratio stands at 10.41x, with detailed valuation metrics and 12 additional ProTips available on InvestingPro.
The analysts justify this valuation by comparing it to Sonic Automotive’s current enterprise value of $6 billion. They also apply a 25% Sum of the Parts (SOTP) discount, considering Echo Park’s scale within the combined business. The revised price target and sustained Buy rating signal a strong belief in the company’s growth prospects and operational strength.
In other recent news, Sonic Automotive Inc. surpassed fourth-quarter estimates, reporting adjusted earnings per share of $1.51, exceeding the projected $1.46. The company’s revenue rose 9% year-over-year to a record-breaking $3.9 billion, outdoing the consensus forecast of $3.6 billion. The Franchised Dealerships segment was a significant contributor to this growth, with revenues increasing 12% year-over-year to $3.4 billion. On the other hand, the EchoPark used vehicle segment experienced a 9% decline in revenues to $506.2 million, despite achieving a record quarterly gross profit of $49 million, a 14% year-over-year increase.
The company’s full-year 2024 revenues were reported at $14.2 billion, a 1% year-over-year decrease, and adjusted earnings per share of $5.60, an 18% year-over-year decline. Sonic’s Board of Directors approved a quarterly cash dividend of $0.35 per share. Sonic Automotive’s recent developments include exceeding its technician hiring goal for 2024, adding 335 technicians to its team, which, according to CEO David Smith, sets the company up for continued growth.
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