Fiesta Restaurant Group (FRGI, Financial) is the parent company of Pollo Tropical and Taco Cabana restaurants. The company specializes in the operation of fast-casual, ethnic restaurants that offer distinct and unique flavors with broad appeal at a compelling value. After being on a stunning run in 2014, Fiesta’s stock is down over 12% YTD. However, the recent pullback can be used as an entry point by opportunistic investors as the company’s long-term prospects look bright.
In the Q1 FY2015, Fiesta’s revenue grew by 12.7% to $163.9 million; miss by $1.43 million, compared to analyst estimate of $165.33 million. The company stated Q1 earnings per share of $0.39, $0.01 better than the analyst estimate of $0.38.
The company’s comparable restaurant sales for both brands also increased considerably.
1- The company’s comparable restaurant sales and comparable guest traffic surged 6.4% and 0.9% respectively at Pollo Tropical.
2- The company’s comparable restaurant sales and comparable guest traffic moved up 3.8% and 0.7% respectively at Taco Cabana.
Restaurant-level EBITDA increased 100 basis points to 23.3% due to satisfactory cost of sales, labor, rent and advertising outlays.
Future growth plans
The fast-food manufacturing has experienced stable growth over the past five years as healthy and low-cost food continues to remain a popular choice for customers. The company’s robust development plans for 2015 include opening of 28 to 32 scheduled restaurants, majority of which will be Pollo Tropical restaurants.
Noticing further, the market is projected to continue rising at a CAGR of 3% until 2018, of which the fast-casual division will occupy the largest share. The goal behind is that, even if the recession affected people to spend comparatively less on outside food in the past, an increase in disposable incomes as an outcome of falling oil prices and economic recovery will improve the demand desired to keep restaurant companies gainful in the forthcoming. The company will achieve from firms expanding their menus and adding new operations overseas in the forthcoming years as well as over the introduction of high-margin and interesting menu items that are becoming more popular with chiliad.
There is a lot of positive sentiment for the stock as it was recently upgraded to buy by several analysts. Jefferies Group reiterated their buy rating on shares of Fiesta Restaurant in a recent research report. Jefferies Group currently has a $70.00 price target on the stock, down from their previous price objective of $77.00. The firm noted:
“EPS was high in quality & beat aggressive consensus. TC SSS beat, but as expected, PT SSS moderated from strong Jan of 8.6% to finish 1Q at 6.4%. We’d be buyers, as pull-back in stock overdone and underlying growth metrics remain healthy.”
Conclusion
After delivering a great quarter, the company still has more room to grow. Fiesta’s expansion plans look likely pay off as the company is maintaining their capital expenditure projection. Fiesta is currently attractively priced and is a good buy.
