Buckingham Research Cuts Price Target on Zoe's Kitchen, Inc. (ZOES) Following 2Q and Guide Down

August 23, 2016 8:07 AM EDT
Get Alerts ZOES Hot Sheet
Price: $21.80 -1%

Rating Summary:
    4 Buy, 7 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 17 | Down: 27 | New: 7
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Buckingham Research maintained a Buy rating on Zoe's Kitchen (NYSE: ZOES), and cut the price target to $37.00 (from $45.00), following the company's 2Q earnings report. Comparable-restaurant sales grew 4% vs. the Street's estimates at ~5%. EPS was $0.06, in-line with the Street's estimate and ahead of $0.05 LY. However, trends have slowed further into 3QFY16 and ZOES trimmed guidance.

Analyst John Zolidis commented, "We reduce our price target to $37 (from $45) but maintain our BUY rating on shares of Zoe’s Kitchen (ZOES) after 2QFY16’s miss/guide-down. Comps slowed to 4% in 2QFY16 (consistent with our MSD expectations) but have further decelerated to +LSD in 3QFY16. After 26 consecutive quarters of MSD-LDD growth our inclination is to view the deceleration as a lull rather than the beginning of the end of the concept. That said, it is difficult to have a high degree of conviction. We also note that rising labor and the end of favorable commodity prices will likely cause margins to ease lower NY even with a modest reacceleration in sales growth. This means that the risk associated with betting on resumption of growth is elevated. Nevertheless, we are sticking with our original assessment that this is a good, differentiated concept, with strong economics and a very attractive LT growth opportunity. We would use weakness to buy but would maintain appropriately-sized positions. We see 40% upside/56% downside in our best/ worst case scenarios."

For an analyst ratings summary and ratings history on Zoe's Kitchen click here. For more ratings news on Zoe's Kitchen click here.

Shares of Zoe's Kitchen closed at $37.25 yesterday.

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