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Sonic Automotive, Inc. Just Beat Analyst Forecasts, And Analysts Have Been Updating Their Predictions

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Sonic Automotive, Inc. (NYSE:SAH) shareholders are probably feeling a little disappointed, since its shares fell 8.7% to US$36.06 in the week after its latest quarterly results. It looks like a credible result overall - although revenues of US$2.5b were in line with what the analysts predicted, Sonic Automotive surprised by delivering a statutory profit of US$1.34 per share, a notable 10% above expectations. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

View our latest analysis for Sonic Automotive

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earnings-and-revenue-growth

After the latest results, the eight analysts covering Sonic Automotive are now predicting revenues of US$11.2b in 2021. If met, this would reflect a solid 15% improvement in sales compared to the last 12 months. Earnings are expected to improve, with Sonic Automotive forecast to report a statutory profit of US$4.27 per share. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$11.2b and earnings per share (EPS) of US$4.17 in 2021. The analysts seems to have become more bullish on the business, judging by their new earnings per share estimates.

There's been no major changes to the consensus price target of US$48.50, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock's valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Sonic Automotive analyst has a price target of US$62.00 per share, while the most pessimistic values it at US$35.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Sonic Automotive shareholders.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's clear from the latest estimates that Sonic Automotive's rate of growth is expected to accelerate meaningfully, with the forecast 15% revenue growth noticeably faster than its historical growth of 1.2%p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 9.0% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Sonic Automotive is expected to grow much faster than its industry.

The Bottom Line

The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Sonic Automotive's earnings potential next year. Fortunately, they also reconfirmed their revenue numbers, suggesting sales are tracking in line with expectations - and our data suggests that revenues are expected to grow faster than the wider industry. The consensus price target held steady at US$48.50, with the latest estimates not enough to have an impact on their price targets.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Sonic Automotive analysts - going out to 2024, and you can see them free on our platform here.

That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Sonic Automotive (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.