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Sonic Automotive Inc SAH

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Morningstar’s Analysis

Valuation
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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Sonic Starts 2021 With Record First Quarter, but Second Quarter May Be Bumpy Due to Low Inventory

Analyst Note

| David Whiston, CFA, CPA, CFE |

We are not changing our fair value estimate after Sonic Automotive’s record first quarter. Diluted EPS from continuing operations of $1.23 beat the Refinitiv consensus of $0.92 and was a first-quarter record. Revenue rose 20.7% year over year to a record $2.8 billion and franchise dealer same-store revenue grew 16.4%, with only service holding growth back. Same-store franchise service revenue fell by 4.7% but we expect this segment to start recovering as soon as second quarter because maintenance can only be deferred for so long. Total franchised store new-vehicle volume rose 12.1%, while new-vehicle gross profit per unit rose by 36.4%. Sonic, like the other dealers we cover, is wisely seeking to maximize the profit on what new-vehicle inventory it has because the semiconductor shortage means discounting to maximize volume is pointless as dealers cannot quickly replenish inventory.

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Company Profile

Business Description

Sonic Automotive is by our estimate the sixth- largest public auto dealership group in the United States by new-vehicle unit sales. The company has 84 franchised stores in 12 states, primarily in metropolitan areas in California, Texas, and the Southeast, plus 16 EchoPark used-vehicle stores. In addition to new- and used-vehicle sales, the company derives revenue from parts and collision repair, finance, insurance, and wholesale auctions. Luxury and import dealerships make up about 88% of new-vehicle revenue, while Honda, BMW, Mercedes, and Toyota constitute about 60% of new-vehicle revenue. BMW is the largest brand at over 24%. 2020's revenue was $9.8 billion, with EchoPark's portion totaling $1.4 billion.

Contact
4401 Colwick Road
Charlotte, NC, 28211
T +1 704 566-2400
Sector Consumer Cyclical
Industry Auto & Truck Dealerships
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 8,100

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