Sonic Corp. (NYSE: SONC) is looking to refranchise hundreds of its company-owned restaurants, as franchised locations have been outperforming of late.
It's a good idea. Franchisees are more motivated to produce strong results than paid-by-the-hour managers, and getting out of the operations business and living on franchise fees and royalties will reduce risk and could increase returns.
But the problem, according (subscription required) to The Wall Street Journal is that tight credit markets and a weak economy could make it difficult for prospective franchisees to make the investment to buy or open Sonic locations.
With few job opportunities, people are looking at starting up franchises. In fact, I recently talked to someone who said that the upcoming Franchise Expo conference has seen a doubling of registrations.
But according to the Wall Street Journal [a paid publication], there are signs that the credit crunch is taking a toll on franchises.
After all, the upfront costs for a franchise can be significant. Moreover, there are the expenses for upkeep and maintenance.
Some of the franchises that are looking to pull back on expansion include major operators like Sonic Corp. (NASDAQ: SONC), Panera Bread (NASDAQ: PNRA) and so on as different finance firms such as GE's (NYSE: GE) capital arm and Bank of America (NYSE: BAC) are showing some restraint and putting a squeeze on financing.
Basically, until the capital markets stabilize and credit gets back to normal, it can be tough times for those who want to jump into the franchise game.
Today was a coin toss going into the FOMC meeting, and even after the meeting. The market could have gone either way today when the Federal Reserve said it is hoping inflation to come down later in the year and that it isn't that hawkish on inflation versus growth. Traders took the stance that rates will not be running rampantly higher by the end of summer. The other news on the economic front didn't inspire much either, as new home sales and prices in may continued their decline. Oil prices fell at one point more than $4.00 per barrel after an increase in inventory levels.
Below are the unofficial closing levels for today:
Amgen Inc. (NASDAQ: AMGN) saw a rise despite the short selling interest with bets against the company having risen by more than 100% to 48.4+ million shares as of June 13. Shares were up 1.3% at $46.98 in today's final minutes.
MOST NOTEWORTHY: The Aerospace sector, Boeing, Aurora Oil & Gas and Syniverse were today's noteworthy downgrades:
Goldman downgraded the Aerospace sector to Cautious from Neutral to reflect high oil prices and the weak economy. The firm also downgraded Boeing (NYSE: BA) shares to Sell from Neutral and added the stock to their Conviction Sell List as they expect the economic weakness and high fuel prices to drive slowing orders.
Jefferies downgraded shares of Aurora Oil & Gas (AMEX: AOG) to Underperform from Hold to reflect the company's falling production, minimal cash flow through the remainder of 2008, and limited access to capital.
Baird cut Syniverse (NYSE: SVR) to Neutral from Outperform as they believe the impact from the Verizon (NYSE: VZ)-Alltel merger could be greater than investors think.
OTHER DOWNGRADES:
Arch Chemicals (NYSE: ARJ) was lowered at Oppenheimer to Perform from Outperform.
Sonic recently announced 21 consecutive years of positive same-store sales performance, and reaffirmed its 33 cents earnings per share earnings expectations for the fourth quarter. For fiscal 2008, Sonic expects earnings growth of 15% to 17%. The consensus of analysts surveyed by Thomson Financial is that Sonic is a buy. The share price was $23.40 at the close on Friday, up from a 52-week low of $20.02 in late July, not yet quite back to its 52-week high of $25.09 in May, but still up from its stumble at the end of August after an analyst's downgrade based on labor and dairy costs. That was before the announcement and reaffirmed expectations mentioned above. Also, Sonic made the Forbes list of 100 best mid cap stocks in America.
MOST NOTEWORTHY: Papa John's (PZZA), Wynn Resorts (WYNN), SourceForge (LNUX), Cathay Pacific (CPCAY) and Arthur J. Gallagher (AJG) were today's noteworthy downgrades:
Matrix downgraded shares of Papa John's (NASDAQ: PZZA) to Hold from Strong Buy to reflect minimal improvement to fundamentals and negative free cash flow trends.
Wynn Resorts (NASDAQ: WYNN) was downgraded to Peer Perform from Outperform based on valuation as the firm believes shares fully reflect solid Las Vegas & Macau fundamentals and the company's development pipeline.
SourceForge (NASDAQ: LNUX) was cut to Underperform from Market perform at JMP Securities, with a $3 target, following the disappointing results.
Merrill Lynch downgraded Cathay Pacific (OTC: CPCAY) to Sell from Buy on valuation.
Arthur J. Gallagher (NYSE: AJG) was cut to Underperform from Peer Perform at Bear Stearns as they believe margin expansion will be lower than expected, softening insurance pricing will impact organic growth, and cites managements acquisition desires over aggressive repurchases...
Who has the audacity to say that ... even think it? Nobody is bigger than McDonald's Corp. (NYSE: MCD). After all, didn't McDonald's change the way we Americans eat? Didn't fast food and drive-thrus become the norm? Didn't McDonald's capture the hearts and, therefore, the appetite of every little kid with its Happy Meals and Ronald McDonald character? Didn't McDonald's even say that the world was ready for their menu and actually expand around the world? Even in France!
But McDonald's is still McDonald's. It has tried to be hip and cool by actually offering salads, but do you really go to a McDonald's to eat a salad? The movie Super Size Me did not do anything for its image either; yet McDonald's still marches on.
McDonald's went public in 1965 and a $2,250 investment back then would be worth nearly $2 million today. What a great success story; 31,000 units spread out over 119 countries. It is truly one great American export. The brand name alone is among the world's top 10 most recognizable and worth untold billions of dollars.
So, who is going to be bigger than McDonald's? The answer is Starbucks Corp. (NASDAQ: SBUX).
MOST NOTEWORTHY: Alcoa Inc (AA), Marvell Technology Group Ltd (MRVL) Under Armour, Inc (UA), Las Vegas Sands Corp (LVS) and QLogic Corp (QLGC) topped today's list of noteworthy upgrades:
RBC Capital upgraded Alcoa Inc (NYSE: AA) to Sector Perform from Underperform following the bid by Alcan Inc (NYSE: AL).
Marvell Technology Group Ltd (NASDAQ MRVL) was upgraded to buy from Neutral with a $23 target at Oppenheimer based on valuation and the improvements made to HDD PC/Desktop.
Morgan Stanley raised shares of Under Armor Inc (NYSE: UA) to Equal Weight from Underweight with a $47 target, based on valuation and long-term growth.
Stifel upgraded shares of Las Vegas Sands (NYSE: LVS) to Buy from Hold with a $100 target citing valuation.
Morgan Keegan upgraded shares of QLogic Corp (NASDAQ: QLGC) to Outperform from Market Perform on valuation and expectations for strong sequential growth to resume in 2H07.
OTHER UPGRADES:
Friedman Billings upgraded shares of Sonic Corp (NASDAQ: SONC) to Outperform from Peer Perform.
Cramer has a new method for predicting takeovers. He says that four of the 14 largest buybacks have either been taken over, or have agreed to be taken over, in the last few months. Thankfully he also said that he is only focusing on buyout candidates that he thinks are good all on their own, outside of trying to find takeover candidates.
The #3 pick is United Stationers Inc. (NASDAQ: USTR), which has bought back 20% of its outstanding shares. The company should have improving margins and there are only three analysts covering the stock. This is in the distribution of office products and office supplies.
The #2 pick is The Brinks Company (NYSE: BCO), which bought back 21% of its stock. He thinks the fundamentals are great on this one. It is a home security play and a play for securely transporting financial and luxury goods.
The #1 pick from Cramer in share buybacks is Weight Watchers International, Inc. (NYSE:WTW).
MOST NOTEWORTHY: Weyerhaeuser Co (WY), Jackson Hewitt Tax Service Inc (JTX), Hewlett-Packard Co (HPQ) and Coldwater Creek Inc (CWTR) were some of today's more noteworthy upgrades:
UBS upgraded shares of Weyerhaeuser Co (NYSE: WY) to Neutral from Reduce citing the stock's recent weakness.
Morgan Stanley upgraded shares of Jackson Hewitt Tax Service (NYSE: JTX) to Equal Weight from Underweight on valuation as the firm believes yesterday's sell-off was overdone.
Hewlett-Packard Co (NYSE: HPQ) was upgraded to buy from Neutral at American Technology on valuation.
Coldwater Creek (NASDAQ: CWTR) was upgraded to Buy from Neutral at Bank of America based on the company's favorable risk/reward.
OTHER UPGRADES:
BB&T upgraded shares of Pacer International, Inc (NASDAQ: PACR) to Buy from Hold citing the company's operational changes and new $100M shares' repurchase.
Goldman upgraded Spherion Corp (NYSE: SFN) to Neutral from Sell.
SkyWest, Inc (NASDAQ: SKYW) was upgraded to Neutral from Underweight at Prudential.
Bear Stearns upgraded shares of Sonic Corp (NASDAQ: SONC) to Outperform from Peer Perform on expectations of an acceleration in partner drive-in same store sales and system wide unit expansion.
Citigroup upgraded Corinthian Colleges, Inc (NASDAQ: COCO) to Buy from Hold after a company visit as the firm believes expectations are finally low enough and recent initiatives are taking hold. Further, Citigroup believes takeover speculation will limit downside as their analysis suggests an LBO could work.
MOST NOTEWORTHY: US Steel Corp (X), Nvidia Corp (NVDA), Hansen Natural Corp (HANS), Take-Two Interactive Software, Inc (TTWO) were some of today's noteworthy upgrades:
UBS upgraded US Steel Corp (NYSE: X) to Neutral from Reduce to reflect the Q2 price hike and strong international demand.
Stifel upgraded Nvidia Corp (NASDAQ: NVDA) to Hold from Sell on valuation.
JP Morgan upgraded Hansen Natural Corp (NASDAQ: HANS) to Overweight from Neutral citing valuation and recent positive developments.
Soleil believes Take-Two Interactive Software Inc (NASDAQ: TTWO) could enjoy support from the success of the investor group in voting in 5 new board directors and replacing the current CEO.
OTHER UPGRADES:
Lehman upgraded LG Philips LCD Co, Ltd (NYSE: LPL) to Equal-Weight from Underweight to reflect an earlier-than-expected turnaround for the LCD industry.
RBC hiked Sonic Corp (NASDAQ: SONC) up to Peer Perform from Underperform with a $23 target.
Credit Suisse believes Caterpillar Inc (NYSE: CAT) has the most attractive risk/reward in the construction and farm machinery sector and added the stock to its Focus List today.
Stifel upgraded Broadcom Corp (NASDAQ: BRCM) To Buy from Hold with a $40 target.
Matrix USA upgraded NetGear, Inc (NASDAQ: NTGR) to Buy from Hold on valuation.
MOST NOTEWORTHY: Chico's FAS, Inc (CHS), Live Nation (LYV) and Clear Channel Communications, Inc (CCU) were some of today's notable upgrades:
Friedman, Billings, Ramsey upgraded shares ofChico's FAS Inc(NYSE: CHS) to Market Perform from Underperform and raised their target to $25 from $17 on valuation.
Matrix USA upgraded Live Nation(NYSE: LYV) to Hold from Sell on valuation.
Sanders Morris upgraded Clear Channel Communications (NYSE: CCU) to Hold from Sell, as the firm believes the disapproval by holders to sell the company will result in shares trading in the $34-$37 range.
OTHER UPGRADES:
Lehman upgraded PPL Corp (NYSE: PPL) to Overweight from Equal-Weight.
Friedman, Billings, Ramsey continued to recommend shares of Urban Outfitters, Inc (NASDAQ: URBN) with an Outperform rating as the firm has seen consistent progress at both the company's divisions throughout March. Friedman added Urban Outfitters to its Top Picks list.
JP Morgan raised Sonic Corp (NASDAQ: SONC) to an Overweight rating from Neutral, and believes shares have priced in softer Q2 sales that were pre-announced late-February.
Sonic Corp. (NYSE: SONC) is looking to refranchise hundreds of its company-owned restaurants, as franchised locations have been outperforming of late.
With few job opportunities, people are looking at starting up franchises. In fact, I recently talked to someone who said that the upcoming 
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Who has the audacity to say that ... even think it? Nobody is bigger than 
Waiting for the other shoe to drop: The looming credit crisis
Closing Bell: Dow down 7.7%; GE, YHOO, MS fall, PGI, MNT soar
Bet on T&A with J&J (JNJ)
