Sonic Corp. (SONC) recently approved of a new stock repurchase program, thereby maintaining the trend of returning wealth to its shareholders from time to time, depending on market conditions. Under this program, the company is authorized to repurchase up to $40.0 million of its common stock by August 31, 2013.
Earlier, on October 13, 2011, the company’s Board of Directors had allocated up to $30.0 million for common stock repurchase through August 31, 2012. During the first nine months of fiscal 2012, the company bought back 3.5 million shares for about $25.5 million. In the third quarter of 2012, this Oklahoma-based company completed the buyback of the remaining shares under its existing program.
At the end of third-quarter 2012, the company had current assets worth $41.6 million. At the end of the quarter, shareholders' equity and long-term debt due after one year stood at $48.9 million and $470.6 million, respectively. Management expects to generate free cash flow of approximately $50—$55 million in fiscal 2012, which will help fund this new repurchase program.
The increase in share buyback authorization reflects the company’s confidence in its fundamentals. At the same time, the share buyback will help the company reduce the share count, thereby increasing earnings per share and return on equity. Apart from bolstering shareholders’ value, this strategic move will also lift the relatively undervalued share price.
Sonic is gradually moving in a positive direction. Increasing focus on franchising, expansion of drive-in facilities, comps improvement, execution of a point-of-sale system and effective utilization of cash are on Sonic’s long-term wish list.
Sonic, which competes with the likes of Panera Bread Co. (PNRA) and BJ’s Restaurants Inc. (BJRI), currently carries a Zacks #3 Rank, which translates into a short-term Hold rating. We are maintaining our long-term Outperform recommendation on the stock.
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