Fiesta Restaurant Group (FRGI) currently grows its Pollo Tropical brand in the double digits and accelerates the growth of this Caribbean food brand, and this relatively unknown restaurant currently trades at a discount to peers despite its outperformance, says Nick Setyan, Senior Equity Analyst at Wedbush Securities.
“[Fiesta Restaurant] has two brands: Pollo Tropical is a quick-casual Caribbean brand and Taco Cabana is a quick-casual Mexican offering. The Pollo Tropical unit economics are stellar. They do about a 26% unit level EBITDA margin, which is in line with Chipotle (CMG), and that’s about 600 to 700 basis points above the next best group of competitors, including the likes of Panera Bread (PNRA). Their average unit volumes are actually about $500,000 more than Chipotle. As a new company, they have accelerated the growth of Pollo Tropical to about 10% in 2013; I expect that to continue to accelerate to 15% in 2014,” Setyan said.
Fiesta Restaurant spun out of Carrol’s Restaurant Group (TAST), and it currently trades at a 10% EBITDA discount even after recent strength in the stock price, Setyan says. He also says the Taco Cabana offering has respectable economics, but the main growth engine of the company remains Pollo Tropical.
“I do expect that once investors start paying more attention to this name, as they go in front of investors at conferences, as they do non-deal road shows, as they report a few more quarters of stellar results — its comps have outperformed the casual category for the last three years, and I expect that to continue going forward — as those numbers keep coming out, I would expect that discount to continue to narrow as it has been over the last few weeks. In fact, there is no reason why one can’t argue it should be trading at a premium to the growth group, given those kinds of unit economics and same-store sales growth outperformance,” Setyan said.
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