Weak Traffic Trends And Weather To Blame For Sonic Price Target Cut

Sonic Corporation SONC’s sales and share price have been in a rut the past couple of years, but UBS believes the pain will be short-lived for investors. According to analyst Dennis Geiger, Sonic’s business model and fundamentals remain strong.

“With a plan to further increase franchise ownership, SONC is positioned for incremental benefits from an even more asset light, higher margin, greater earnings visibility model,” Geiger explained.

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With drivers in place for fiscal 2017, shareholders most continue to be patient in the near-term. In fact, UBS has lowered its fiscal Q4 SSS projections from +0.5 percent to -0.5 percent.

Mother Nature likely rained on Sonic’s parade in the most recent quarter, with severe flooding in parts of Texas, Louisiana, Arkansas and Mississippi. Together, those four states account for about 40 percent of Sonic’s business.

For now, investors are hoping for an immediate boost from better weather coupled with promotions such as the boneless wing BOGO deal, Flavor Funnels and the Fiery Fiery Cheeseburger/Fiery Ultimate Chicken Sandwich.

UBS has lowered its Q3 EPS estimate from $0.47 to $0.46 and its price target from $33 to $28. Until the company overcomes the near-term headwinds facing the industry, UBS maintains a Neutral rating on Sonic stock.

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