Sonic Profits While McDonalds, Wendy’s Fall Behind

Sonic's "this is how you sonic" slogan may be due for a name change. "This is how you profit" might be more fitting.

The drive-in burger joint has managed to fatten up the pockets of its investors in recent months while many fast food companies struggle.

Sonic isn't doing it by offering healthy alternatives like salads or veggie burgers. Rather, it's doubling down on indulgence, but keeping it affordable to many Americans.

"I think Sonic understands their core customer more than the big guys do," proclaimed Will Slabaugh, an analyst with Stephens Inc. "You're typically going out to indulge. You're watching that waistline a little less and your wallet a little bit more."

Investors seem more than satisfied. Sonic's (SONC) stock surged about 10% Wednesday after the company reported its best quarterly results in a decade. It's now up over 30% in the past three months.

Competitors McDonalds (MCD) and Wendy's (WEN) are pretty far behind. In fact, McDonald's just brought back its "lovin' it" marketing campaign in an effort to put some feel good back into its business.

So what's Sonic's secret sauce?

Wednesday's stellar results aside, the company does face some challenges moving forward. Rising commodity prices, especially for beef, are a headwind, noted Derrington, though he's hopeful that rising sales will offset those costs.

The stock currently trades at around 26 times this year's earnings, which is more than Wendy's price-to-earnings ratio of 23. Most analysts think cheaper gas will be a boon for Sonic.
Derrington believes the stock could continue to run.

"I don't expect the company's business to slow of any material nature," he said.