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Sonic Automotive Inc Class A SAH

Morningstar Rating
$50.25 −0.70 (1.37%)
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Company Report

Auto Dealer Stocks Falling Hard on Hyundai-Amazon Partnership Is Too Much Fear-Mongering

At the Los Angeles auto show on Nov. 16, Hyundai announced a partnership with Amazon in which, starting next year, some of its dealers will sell new vehicles on Amazon.com. The news sent each of the six franchise dealers and CarMax down about 5%-8%, which we think is a large overreaction predicated on fears of Amazon taking share away from dealers. Such a risk is not even possible on new vehicle sales due to state franchise laws, nor do we think it is likely that Amazon wants to do all aspects of auto retailing such as handling and disposing of trade-ins, service, and finance and insurance offerings. Service is a very underappreciated benefit that dealers provide customers when comparing the traditional auto industry to digital retailing and electric vehicle startups' direct sales formats. Should Amazon directly sell used vehicles someday, CarMax would have more competition, but it also has the ability to sell via brick-and-mortar, digital-only, or any combination of both depending on what the customer wants, something a digital-only retailer cannot offer. Our auto coverage has been implementing omnichannel tools for years and we doubt that any of their management teams are surprised by the Amazon news.

Price vs Fair Value

SAH is trading at a 18% discount.
Price
$50.25
Fair Value
$18.00
Uncertainty
High
1-Star Price
$56.91
5-Star Price
$64.70
Economic Moat
Bwyqy
Capital Allocation
Wqhqbhbr

Bulls Say, Bears Say

Bulls

Auto dealerships are well-diversified businesses that have lucrative parts and servicing operations, which help them be profitable in almost any environment.

Bears

Dealerships are prone to macroeconomic cycles, and the pandemic and semiconductor shortages continue to hurt new vehicle inventory availability and in turn compressing used vehicle profit.

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News

Trading Information

Previous Close Price
$50.95
Day Range
$50.1051.95
52-Week Range
$39.0262.26
Bid/Ask
$49.70 / $50.75
Market Cap
$1.70 Bil
Volume/Avg
217,046 / 273,500

Key Statistics

Price/Earnings (Normalized)
6.45
Price/Sales
0.13
Dividend Yield
2.27%
Dividend Yield (Forward)
2.39%
Total Yield
13.67%

Company Profile

Sonic Automotive is one of the largest auto dealership groups in the United States. The company has 108 franchised stores in 18 states, primarily in metropolitan areas in California, Texas, and the Southeast, plus 18 EchoPark and 7 Northwest Motorsports used-vehicle stores, and 16 collision centers. The company derives revenue from new and used vehicles plus parts and collision repair, finance, insurance, and wholesale auctions. Luxury and import dealerships make up about 83% of franchise new-vehicle revenue, while Honda, BMW, Mercedes, and Toyota constitute about 56% of new-vehicle revenue. BMW is the largest brand at about 26%. 2022's revenue was $14 billion, with EchoPark's portion totaling $2.5 billion. Sonic bought RFJ Auto in December 2021, which added $3.2 billion in sales.
Sector
Consumer Cyclical
Industry
Auto & Truck Dealerships
Stock Style Box
Small Value
Total Number of Employees
10,300

Competitors

Valuation

Metric
SAH
PAG
GPI
Price/Earnings (Normalized)
6.458.866.17
Price/Book Value
1.992.221.49
Price/Sales
0.130.350.22
Price/Cash Flow
4.177.794.94
Price/Earnings
SAH
PAG
GPI

Financial Strength

Metric
SAH
PAG
GPI
Quick Ratio
0.230.210.26
Current Ratio
1.121.011.09
Interest Coverage
1.038.616.80
Quick Ratio
SAH
PAG
GPI

Profitability

Metric
SAH
PAG
GPI
Return on Assets (Normalized)
5.68%8.13%9.11%
Return on Equity (Normalized)
31.03%27.19%26.54%
Return on Invested Capital (Normalized)
9.45%11.73%12.91%
Return on Assets
SAH
PAG
GPI

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Economic Moat
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SIEVF
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LAD
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AN
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