Oppenheimer: Sonic Has 'Strengthening Legs,' Raising PT

Oppenheimer raised its price target on Sonic Corporation (NASDAQ: SONC) Tuesday from $32 to $38 and maintained an Outperform rating.

Analyst Brian Bittner noted that the company pre-announced double-digit SSS for the fiscal second quarter, which was especially encouraging as the company headed into the March to August timeframe, which accounts for 70 percent of annual earnings.

The fiscal Q2 comps came in at +11.5 percent versus Street estimates of +6 percent, with traffic as the "main contributor," according to Bittner.

Based on the second quarter performance and momentum from digital menus, a new smartphone app and enhanced advertising, Bittner raised estimates for 2015 EPS from $1.05 to $1.10 and 2016 estimates from $1.25 to $1.28. The Street had estimated $1.03 and $1.20, respectively.

Discussing margins, the analyst explained that "restaurant margins could be held in check when SONC reports full earnings owing to unquantified ‘labor investments' and mid-single-digit food inflation.

"However," he wrote, "food costs dynamics should be less of a headwind in 2H, and we still expect at least 100bps of restaurant margin expansion."

Bittner concluded that Sonic was a story with "strengthening legs."

The $38 price target was based on 14x estimated 2016 EBITDA.

Sonic Corporation closed at $33.86 Tuesday, up 0.56 percent.