On Monday, CFRA, a financial research firm, updated its outlook for Sonic Automotive Inc . (NYSE: NYSE:SAH), increasing the 12-month price target from $55.00 to $65.00. The firm maintained its Hold rating on the stock. The revision reflects a positive shift in the anticipated market conditions for auto dealers.
The analyst at CFRA stated that the price target adjustment follows the stock's performance, which has surpassed the previous target. The stock has demonstrated strong momentum with a 25% year-to-date return and has maintained dividend payments for 15 consecutive years.
The firm's earnings per share (EPS) estimates for Sonic Automotive remain unchanged at $5.40 for the year 2024 and $5.90 for 2025. The Hold rating was reiterated alongside the new price target.
The rationale behind the increased price target is attributed to a more favorable environment expected for auto dealers in the upcoming quarters. Factors contributing to this improved outlook include better affordability and a potential easing of interest rates, which could positively impact Sonic Automotive's performance.
For the past few quarters, the auto dealership sector has faced challenges such as higher interest rates and growing inventories, which have pressured both the top-line revenue and bottom-line profits. The analyst's commentary suggests that these headwinds may be subsiding, setting the stage for a more optimistic future for companies like Sonic Automotive.
In other recent news, Sonic Automotive has been the focus of analysts' attention following mixed third-quarter results.
The company reported record gross profit and adjusted EBITDA in its EchoPark segment, despite a 38% year-over-year decline in adjusted EPS. Seaport Global Securities upgraded Sonic Automotive's stock from Neutral to Buy, citing a structurally higher profitability post-pandemic. The upgrade was also influenced by an analysis of the franchise auto retailer sector, which Seaport believes is undervalued.
Needham, another financial analyst firm, raised its stock price target for Sonic Auto from $73 to $74, maintaining a Buy rating. This adjustment reflects confidence in Sonic Auto's recent performance, particularly the growth and improved profitability in its EchoPark used vehicle segment. Sonic Auto's franchise business performance varied, with potential challenges indicated by the initial fiscal year 2025 retail gross profit per unit (GPU) guidance.
In the same vein, Sonic Auto remains optimistic about the potential for growth, particularly in the EchoPark and Powersports segments. The company also announced a 17% increase in its quarterly cash dividend to $0.35 per share.
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