Restaurant chain El Pollo Loco (NASDAQ:LOCO) captured attention recently with its revenue and earnings beats in the first quarter and robust growth plans. Not since Gus helmed Los Pollos Hermanos in Breaking Bad has there been this much buzz around a fast-casual Southwestern chicken chain. The stock is up over 17% year-to-date and enjoys positive investor sentiment. Investors looking for an opportunity to jump on the early stages of a growth story in the restaurant & bars industry may find this one compelling.
El Pollo Loco Focusing on Franchise Growth
El Pollo Loco is a restaurant brand operating within the fastest expanding sector of the restaurant industry, offering food typical of fast-casual restaurants while providing the swift service, convenience, and affordability that are hallmarks of traditional quick-service restaurants (QSRs). Their menu revolves around their signature product, citrus-marinated fire-grilled chicken, which is the core ingredient in an assortment of dishes crafted fresh daily in their open kitchens.
The company recently brought in a new CEO, Liz Williams, who brings substantial leadership experience from roles in high-growth retail and restaurant businesses. Her resume includes stints at Yum! Brands (NYSE:YUM) and Taco Bell, as well as being the Chief Executive Officer of Outfox Hospitality—the parent company of Foxtrot, a modern cafe and convenience store—and Dom’s Kitchen and Market.
With the new CEO at the helm, El Pollo Loco has initiated a strategic shift to drive franchise growth. The company is streamlining operations, introducing new equipment and kiosks to enhance order processing efficiency, digitizing menus and ordering systems, and enhancing unit economics. These strategic moves are expected to position the company for sustainable growth and improved financial performance.
El Pollo’s Financial Results & Future Outlook
The company recently reported results for the first quarter ending March 27, 2024. Revenue was $116.2 million, exceeding Q1 2023’s $114.5 million and surpassing the consensus of $111.08 million. Net income of $6.8 million was a year-over-year increase of roughly $3 million. EPS of $0.22 per diluted share exceeded expectations by $0.08 and improved from $0.14 in the previous year.
As of March 27, 2024, the company had an outstanding debt balance of $80 million with a reserve of $9.1 million in cash and cash equivalents after paying down $4 million on its credit facility during the first quarter. It also repurchased 136,400 shares of common stock for about $1.2 million under its 2023 Share Repurchase Program.
For the rest of 2024, the company plans to open two company-owned and five to seven franchised restaurants. It expects to spend $25.0 – $28.0 million in capital.
What Is the Price Target for LOCO Stock?
Wall Street follows the company thinly, and analysts have taken a cautious approach to the stock. For example, Truist analyst Jake Bartlett recently issued a Hold rating on the shares while raising the price target from $10 to $12, citing strong Q1 results, improved marketing and operations, and new management’s growth strategy.
Overall, El Pollo Loco is rated a Hold based on the recommendations and 12-month price targets issued over the past three months by the two analysts following the company. The average price target for LOCO stock is $12.00, which represents a 15.94% upside from current levels.
The stock has been trending, climbing over 10% in the past 90 days. It trades in the middle of its 52-week range of $8.11-$11.99 and shows strong positive price momentum, trading above the 20-day (9.17) and 50-day (9.01) moving averages. The stock appears relatively undervalued, with a P/E ratio of 12.78x, sitting well below the Restaurant industry average of 25.5x.
El Pollo Loco Is on a Growth Trajectory
El Pollo Loco is on a growth trajectory, exceeding expectations along the way. The new CEO has ambitious franchise expansion plans and is implementing strategies to simplify operations and improve the profitability of restaurant units. The stock is undervalued, shows positive price momentum, and suggests upside growth potential – an attractive combination.
