Zacks senior retail industry analyst Paul Raman, CFA has recently rated a Hold for the shares of automotive retailer Sonic Automotive, Inc. (SAH). Here we take a look at some of the reasons behind his arguments:

'Sonic Automotive is a large automotive retailer that is focused on improving margins by lowering selling, general, and administrative (SG&A) expenses. The company is focused on reducing inventory, improving operational performance and reducing debt levels. It is also focusing on increasing its used car to new car ratio to 0.60. This would take the company to the average of its peers.

'Right now, the company focuses on value used cars at the low end and Certified Pre-Owned (CPO) vehicles at the high end. CPOs earn about $400 more per unit compared to non-CPO vehicles. The company will begin to stress on the area that is in between the two, which should lead to higher car sales. This should also lead to higher margins, as used cars have higher margins.

'However, Sonic is in an industry experiencing increasing competition and lower car sales. Currently, shares of Sonic Automotive, Inc. are trading at 9.4x our 2007 EPS estimate of $2.56. Owing to higher interest rates, a slow sales environment and falling margins, we rate the stock a Hold. The six-month target price for Sonic is $26.00, which is 10.2X 2007 EPS.'