Analyzing Sonic Automotive (SAH) and KAR Auction Services (KAR)

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Sonic Automotive (NYSE: KAR) and KAR Auction Services (NYSE:KAR) are both retail/wholesale companies, but which is the superior stock? We will contrast the two companies based on the strength of their earnings, risk, analyst recommendations, dividends, valuation, profitability and institutional ownership.

Dividends

Sonic Automotive pays an annual dividend of $0.24 per share and has a dividend yield of 1.1%. KAR Auction Services pays an annual dividend of $1.40 per share and has a dividend yield of 2.2%. Sonic Automotive pays out 13.0% of its earnings in the form of a dividend. KAR Auction Services pays out 56.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Sonic Automotive has increased its dividend for 2 consecutive years and KAR Auction Services has increased its dividend for 5 consecutive years. KAR Auction Services is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Sonic Automotive and KAR Auction Services’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Sonic Automotive 0.95% 10.42% 2.14%
KAR Auction Services 11.50% 26.15% 5.46%

Risk & Volatility

Sonic Automotive has a beta of 1.63, indicating that its share price is 63% more volatile than the S&P 500. Comparatively, KAR Auction Services has a beta of 1.13, indicating that its share price is 13% more volatile than the S&P 500.

Analyst Ratings

This is a summary of recent ratings and target prices for Sonic Automotive and KAR Auction Services, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Sonic Automotive 1 2 0 0 1.67
KAR Auction Services 0 3 6 0 2.67

Sonic Automotive currently has a consensus target price of $19.25, indicating a potential downside of 8.98%. KAR Auction Services has a consensus target price of $60.13, indicating a potential downside of 5.48%. Given KAR Auction Services’ stronger consensus rating and higher possible upside, analysts plainly believe KAR Auction Services is more favorable than Sonic Automotive.

Valuation & Earnings

This table compares Sonic Automotive and KAR Auction Services’ revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Sonic Automotive $9.87 billion 0.09 $92.98 million $1.85 11.43
KAR Auction Services $3.46 billion 2.47 $362.00 million $2.50 25.44

KAR Auction Services has lower revenue, but higher earnings than Sonic Automotive. Sonic Automotive is trading at a lower price-to-earnings ratio than KAR Auction Services, indicating that it is currently the more affordable of the two stocks.

Institutional & Insider Ownership

63.7% of Sonic Automotive shares are held by institutional investors. Comparatively, 98.5% of KAR Auction Services shares are held by institutional investors. 32.3% of Sonic Automotive shares are held by insiders. Comparatively, 1.3% of KAR Auction Services shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Summary

KAR Auction Services beats Sonic Automotive on 13 of the 17 factors compared between the two stocks.

Sonic Automotive Company Profile

Sonic Automotive, Inc. operates as an automotive retailer in the United States. It operates in two segments, Franchised Dealerships and Pre-Owned Stores. The Franchised Dealerships segment is involved in the sale of new and used cars and light trucks, and replacement parts; provision of vehicle maintenance, manufacturer warranty repair, and paint and collision repair services; and arrangement of extended warranties, service contracts, financing, insurance, and other aftermarket products. The Pre-Owned Stores segment operates stand-alone pre-owned specialty retail locations, which enable customers to search, buy, service, finance, and sell pre-owned vehicles. As of December 31, 2017, the company operated 114 new vehicle franchises in 13 states representing 25 brands of cars and light trucks; 18 collision repair centers; and 9 pre-owned vehicle stores. Sonic Automotive, Inc. was founded in 1997 and is based in Charlotte, North Carolina.

KAR Auction Services Company Profile

KAR Auction Services, Inc., together with its subsidiaries, provides used car auction and salvage auction services in the United States, Canada, Mexico, and the United Kingdom. The company operates through three segments: ADESA Auctions, IAA, and AFC. The ADESA Auctions segment offers whole car auctions and related services to the vehicle remarketing industry through online auctions and auction facilities. It also provides value-added services, such as auction related, transportation, reconditioning, inspection, title and repossession administration and remarketing, vehicle research, and analytical services, as well as data. This segment sells its products and services through vehicle manufacturers, fleet companies, rental car companies, finance companies, and others. The IAA segment offers various loss solutions and salvage vehicle auction services that facilitate the remarketing of vehicles for a range of sellers, including insurance companies, dealerships, rental car companies, fleet lease companies, and charitable organizations. This segment also provides catastrophe, vehicle inspection center, and transportation and towing services. The AFC segment offers floorplan financing, a short-term inventory-secured financing, to independent used vehicle dealers. As of December 31, 2017, the company had a network of 75 whole car auction locations and 175 salvage auction sites. The company was formerly known as KAR Holdings, Inc. and changed its name to KAR Auction Services, Inc. in November 2009. KAR Auction Services, Inc. was founded in 2006 and is headquartered in Carmel, Indiana.

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