Sonic Automotive's Third Quarter Solid and Used Vehicle Improvement Likely Coming in 2023

Sonic Automotive’s third quarter results looked mostly solid to us and give us no reason to change our fair value estimate. Diluted EPS of $2.23 rose 13.8% year over year and include about a $3 million impact from Hurricane Ian, though Sonic’s Florida stores did not incur severe damage. The EPS did miss the Refinitiv consensus of $2.47 probably due to the hurricane and mostly we think from consensus not able to correctly gauge the impact of expensive used vehicle procurement costs at auction impacting both franchise stores and the EchoPark standalone used vehicle stores. Franchise used vehicle gross profit fell by 9% while EchoPark suffered its sixth straight quarterly pretax loss, this one for $29 million. Total company liquidity seems adequate to us to handle a downturn at $488 million, though $245.2 million of share repurchases this year have lowered that figure from $702.8 million at year end.