On Thursday, Stephens began coverage on Sonic Auto (NYSE: SAH), assigning an Equal Weight rating and setting a price target of $64.00.
The firm's valuation is based on a 7.0x EV/EBITDA multiple applied to their 2025 EBITDA estimate. Sonic Auto, recognized for its significant self-help potential among the Public 6 auto retailers, has reported trailing twelve months (TTM) EBITDA of $559 million.
The company's EchoPark division, which focuses on standalone used vehicle sales, had previously recorded an EBITDA loss of approximately $85 million in 2023. However, EchoPark's financial performance improved, turning modestly positive in the first and second quarters of 2024. Additionally, Sonic Auto's powersports division, while currently only modestly profitable, is anticipated to become a more substantial contributor to the company's earnings in the future.
The analysis suggests that if Sonic Auto can demonstrate consistent and moderate growth across all three of its divisions—franchised dealerships, EchoPark, and powersports—the market might reward the company with a higher valuation multiple. Currently, Sonic Auto's multiple lags behind its peers by at least one turn, and in some cases, even more.
Sonic Auto's portfolio boasts an excellent brand mix with 60% luxury, 24% import, and 16% domestic vehicles. The company operates large, productive stores, predominantly situated in major metropolitan areas. A significant portion of its locations, 52%, are strategically placed in California, Texas, and Florida, which are key markets for the automotive industry.
The company has also been actively repurchasing its shares, with approximately 32% of its shares bought back since 2019 and about 6% repurchased over the past twelve months. Sonic Auto currently offers the second-largest dividend yield among the Public 6 auto retailers, at 2.1%.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.