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Can Sonic Automotive (SAH) Run Higher on Rising Earnings Estimates?

Zacks

Investors might want to bet on Sonic Automotive (SAH), as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.

The upward trend in estimate revisions for this auto dealer reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool — the Zacks Rank — is principally built on this insight.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For Sonic Automotive, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.


The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

For the current quarter, the company is expected to earn $0.47 per share, which is a change of +34.29% from the year-ago reported number.

Over the last 30 days, two estimates have moved higher for Sonic Automotive while one has gone lower. As a result, the Zacks Consensus Estimate has increased 9.57%.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $2.02 per share, representing a year-over-year change of +14.12%.

The revisions trend for the current year also appears quite promising for Sonic Automotive, with four estimates moving higher over the past month compared to no negative revisions. The consensus estimate has also received a boost over this time frame, increasing 16.49%.

Favorable Zacks Rank

Thanks to promising estimate revisions, Sonic Automotive currently carries a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

While strong estimate revisions for Sonic Automotive have attracted decent investments and pushed the stock 21.8% higher over the past four weeks, further upside may still be left in the stock. So, you may consider adding it to your portfolio right away.


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Zacks Investment Research
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