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Analyst lifts Sonic's rating partly on new ads

Tuesday - 6/19/2012, 11:44am  ET

NEW YORK (AP) - Shares of Sonic Corp. climbed on Tuesday as an analyst raised the fast food restaurant operator's rating, saying new ads and better product quality should help the company continue to post increases in a key revenue metric.

THE SPARK: Sterne, Agee & Leach's Lynne Collier increased Sonic's rating to "Buy" from "Neutral" and started it with a price target of $11 _ about $2 per share higher than its most recent close.

THE ANALYSIS: The analyst said in a client note that Sonic has spent the past several quarters working on improving menu items like burgers and ice cream. But the Oklahoma City company's same-store revenue remained inconsistent, Collier said, because it did not have the proper advertising in place.

Collier believes that Sonic's return to its "Two Guys" ad campaign earlier this year was a positive, partly because customers will remember the ads from a few years ago and instantly link it to the brand. The ads feature two men sitting in a car getting food at a Sonic drive-in.

The analyst said the return of the "Two Guys" ads in late February and early March coincides with improving revenue at stores open at least a year.

Earlier this month Sonic reported that the revenue metric climbed 2.8 percent during its fiscal third quarter. This figure is a key indicator of a restaurant operator's health because it excludes results from locations recently opened or closed.

SHARE ACTION: Sonic's stock gained 26 cents, or 2.9 percent, to $9.15 in morning trading. The shares have traded in a 52-week range of $6.35 to $11.34.

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