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Stock Strategist

Sonic Automotive Has Momentum

The narrow-moat car dealership has a bold strategy for both new and used car sales, but shares are pricey today.

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 Sonic Automotive (SAH) is undergoing many changes. It has resumed acquisitions, increased its product mix toward the more lucrative luxury and import brands, is installing a dealer-management system across all its stores, and has a bold strategy for new and used vehicles. 

The firm reported results that hit record fourth-quarter levels for several metrics, including used unit volume and gross profit in the service and finance segments. Adjusted diluted EPS rose 8.2% year over year to $0.66, easily beating consensus of $0.62, while revenue grew 3.5% to roughly match consensus. We are keeping our narrow moat rating but increasing our fair value estimate to $20 for a time value of money adjustment in our model. Even after the increase, we see Sonic's shares as overvalued today.

David Whiston does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.