What does everyone think? This stock is up almost 60% in 2012 and I think it is ready for a pullback based on the fact that the Company has weak metrics. Lots of debt, few assets. Additionally, the Company is coming off their peak season and the next two earnings reports are for off-season numbers, which are weaker. The products they dish out are third tier items and I think the risk is minimal if one was to initiate a short position.
I was suprised to find out the Company is using their cash flow to purchase shares of stock. They have over $400 million in debt. Wouldn't the Company be better served on paying down debt first before buying stock back??? I think I read that they bought $30mill last year. Sounds foolish and I wonder where the stock price would be if they did not support it with an aggresive buy back.
Sonic Corporation (NASDAQ: SONC) The Oklahoma City, Oklahoma, based drive-in restaurant chain will report first quarter 2013 earnings on Thursday at 5:00 p.m. ET. Consensus estimates stand at $0.11 earnings per share on revenue of $126 million. In recent months, Sonic has been using the free cash flow generated from its franchise business model to reduce debt and repurchase common shares. Management completed a $30 million share repurchase plan in June, and a new $40 million authorization was issued through August 2013.
Investors will also be looking for Sonic to maintain a higher operating margin going forward, as the company reported a 20.5% operating income margin during Q4 2012 compared to 18.0% during the prior year. Management attributes the margin expansion at its 3,500 drive-ins to new technology initiatives and improved supply chain management. Same-store sales also increased by 2.3% overall during the most recent quarter. Sonic Corporation’s fiscal year ends on August 31 each year.
Tenfin - this aggressive repurchase plan is the most confusing thing. It is usually a bad idea to be short a stock where management is continually buying back shares. They will have bought back $70million in two years if they complete the $40 million as scheduled.
I honestly don't know why they don't use their cash flow to pay down debt or grow... but declining revenues tells me they can't grow anymore. EPS only goes up because of fewer shares. I initiated a small short position today but either way GL.