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.
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...
MOST NOTEWORTHY: AmeriCredit (ACF), LTX Corp (LTX) and Foot Locker (FL) were today's noteworthy downgrades:
Goldman cut AmeriCredit (NYSE: ACF) shares to Sell from Neutral to reflect the challenging rate and credit environment.
Friedman Billings has concerns about LTX Corp's (NYSE: LTX) largest customer, Texas Instruments (TXN), losing market share in the handset baseband market, which has already impacted Texas' equipment test orders from LTX. Friedman Billings cut LTX Corp to Market Perform from Outperform.
Foot Locker (NYSE: FL) was downgraded to Neutral from Overweight at JP Morgan, citing the disappointing Q2 results...
OTHER DOWNGRADES:
Genesco (NYSE: GCO) was cut to Neutral from Positive at Susquehanna.
MOST NOTEWORTHY: Sonic Automotive (SAH), Hawaiian Electric (HE), AstraZeneca (AZN), AMB Property (AMB) and ProLogis (PLD) were today's noteworthy downgrades:
Goldman downgraded Sonic Automotive (NYSE: SAH) to Neutral from Buy on valuation.
Hawaiian Electric (NYSE: HE) was cut to Underweight from Equal Weight at Lehman based on valuation and the regulatory environment.
AstraZeneca (NYSE: AZN) was downgraded to Equal Weight from Overweight at MorganStanley based on the reduced buyback, the $1.6B restructuring charge and potential for Nexium generics in Europe.
Citigroup cut AMB Property (NYSE: AMB) and ProLogis (NYSE: PLD) to Sell from Hold citing the tight capital markets and the impact on costs for the downgrades...
OTHER DOWNGRADES:
JP Morgan downgraded D.R. Horton (NYSE: DHI) to Neutral from Overweight.
MOST NOTEWORTHY: Big 5 Sporting Goods (BGFV), Nutrition 21 (NXXI), Sonic Solutions (SNIC), AeroGrow (AERO) and Sequenom (SQNM) were today's noteworthy initiations:
Nollenberger believes Big 5 Sporting Goods' (NASDAQ: BGFV) shares are fairly valued and would likely get more constructive near the $20 level and initiated shares with a Neutral rating.
ThinkEquity said Nutrition 21 (NASDAQ: NXXI) has a number of clinically proven nutritional supplements that target the rapidly growing obesity and diabetes markets, and initiated shares with a Buy rating.
SMH Capital initiated shares of Sonic Solutions (NASDQ: SNIC) with a Buy rating, on the belief that shares have been oversold.
ThinkEquity is positive on AeroGrow's (NASDAQ: AERO) proprietary aeroponic technology and recurring revenue model and initiated shares with a Buy rating.
Leerink Swann started shares of Sequenom (NASDAQ: SQNM) with an Outperform rating as MEDACorp researchers are positive regarding the company's MassARRAY system for genetic analysis, which is well-positioned for growth in follow-on SNP fine-mapping studies; Leerink anticipates in 2008, the company will launch iPLEX 3, which is currently in development, and reduce the cost of acquiring fine-mapping SNP data...
OTHER INITIATIONS:
Dover (NYSE: DOV) was initiated at Morgan Stanley with an Overweight rating.
Merrill started Akamai (NASDAQ: AKAM) with a Neutral rating.
Pacific Crest started Wipro Ltd (NYSE: WIT) with a Sector perform.
Susquehanna initiated Herman Miller (NASDAQ: MLHR) with a Positive rating.
RBC Capital initiated Warren Resources (NASDAQ: WRES) with an Outperform rating.
MOST NOTEWORTHY: Seagate Technology (STX), SAP AG (SAP), Western Digital (WDC), BAE Systems (BAESY) and Manpower (MAN) are today's noteworthy upgrades:
Hambrecht upgraded shares of Seagate Tech (NYSE: STX) on improving demand and second half of 2007 prospects. Bear Stearns upgraded shares to Outperform from Peer Perform based on stabilizing industry conditions.
ING upgraded shares of SAP AG (NYSE: SAP) to Buy from Hold shares to reflect the migration within the company's large installed base and growing opportunities in the small business market.
Hambrecht upgraded Western Digital (NYSE: WDC) to Buy from Hold on improving demand for 2H07 growth prospects.
HSBC raised BAE Systems (OTC: BAESY) off the ground, upgrading shares to Neutral from Underweight.
Banc of America upgraded Manpower (NYSE: MAN) to Buy from Neutral to reflect the change in French payroll tax subsidies, which they view as a positive change to the company's ongoing margin structure.
OTHER UPGRADES:
First Albany upgraded ATMI Inc (NASDAQ: ATMI) to Buy from Hold.
The Medicines Co (NASDAQ: MDCO) was raised to Sector Perform from Underperform at RBC Capital.
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: Tenet Healthcare Corp (THC), Furniture Brands International, Inc (FBN), Sepracor Inc (SEPR), ValueClick, Inc (VCLK) and Altria Group, Inc (MO) were today's noteworthy downgrades:
Bear Stearns downgraded shares of Tenet Healthcare (NYSE: THC) to Underperform from Peer Peform citing difficulties in California and weak margins.
Stifel downgraded Furniture Brands (NYSE: FBN) to Sell from Hold citing concerns regarding continued weakness in the housing industry.
Summer Street downgraded Sepracor (NASDAQ: SEPR) to Sell from Neutral after the HCPCS website indicated Xopenex and Albuterol will have the same code as of July 1.The firm believes this eliminates the optimistic scenarios that Sepracor can garner a minimal-or-no-reimbursement cut.
RBC downgraded shares of ValueClick (NASDAQ: VCLK) to Underperform from Sector Perform as the firm believes the FTC letter poses a risk to earnings and that the company is unlikely to be acquired.
Matrix downgraded Altria Group (NYSE: MO) to Buy from Strong Buy to reflect decreasing cigarette sales and increasing valuation...
OTHER DOWNGRADES:
American Technology cut Autodesk, Inc (NASDAQ: ADSK) to Neutral from Buy.
Matrix downgraded Fluor Corp (NYSE: FLR) to Sell from Buy.
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.
MOST NOTEWORTHY: The automotive sector was today's most noteworthy initiation:
Prudential initiated the automotive manufacturers industry and automotive retail industry with Favorable ratings and the automotive parts and equipment industry with an Unfavorable rating. The firm initiated coverage on following stocks:
Merriman initiated shares of Progressive Gaming International Corp (NASDAQ: PGIC) with a Buy rating, as the firm believes it is on the cusp of gaining meaningful market share of casino floors through its technologies and now is the time to get involved in shares.
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.
Sonic Corp. (NYSE: SONC) is looking to refranchise hundreds of its company-owned restaurants, as franchised locations have been outperforming of late.
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Who has the audacity to say that ... even think it? Nobody is bigger than 
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