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

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 third-quarter 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. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.

View our latest analysis for Sonic Automotive

Taking into account the latest results, the current consensus from Sonic Automotive's eight analysts is for revenues of US$11.2b in 2021, which would reflect a decent 15% increase on its sales over the past 12 months. Sonic Automotive is also expected to turn profitable, with statutory earnings of US$4.27 per share. In the lead-up to this report, the analysts had been modelling revenues of US$11.2b and earnings per share (EPS) of US$4.17 in 2021. So the consensus seems to have become somewhat more optimistic on Sonic Automotive's earnings potential following these results.

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. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Sonic Automotive, with the most bullish analyst valuing it at US$62.00 and the most bearish at US$35.00 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. 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. Compare this with other companies in the same industry, which are forecast to grow their revenue 9.0% next 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 most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Sonic Automotive following these results. 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. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

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. At Simply Wall St, we have a full range of analyst estimates for Sonic Automotive going out to 2024, and you can see them free on our platform here..

You should always think about risks though. Case in point, we've spotted 3 warning signs for Sonic Automotive you should be aware of, and 1 of them doesn't sit too well with us.

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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.
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