Fiesta Restaurant Group (FRGI) Starts '16 On Better Note - Jefferies

Jefferies analyst, Alexander Slagle, thinks the outlook for Fiesta Restaurant Group (NASDAQ: FRGI) is improving but the reset involves a price target reduction while maintaining the Buy rating.

4Q Op EPS beat on lower food costs & tax rate as Taco Cabana SSS better than expected & Pollo Tropical SSS only modestly softer than upwardly revised expectations. QTD trends solid, suggesting recent initiatives are moving the needle. FRGI also announced its intention to separate TC & PT in ’17 or ’18 through a tax-efficient distribution of 100% of TC’s stock to FRGI shareholders.

QTD SSS for TC and PT of 3.4% & flat with traffic flat & +0.6% as 2-year traffic trends have improved nicely since October (we estimate 250-400+bps improvement in cumulative 2-yr traffic). Although it remains early in this SSS turnaround, the risks surrounding further deceleration are already baked into the stock (now trading at 21x ’16E EPS & 9x EBITDA). Many of Fiesta’s key metrics continue to strengthen (unit growth accelerating to 13% with new store performance robust, while overall AUVs now $2.6mm & $1.9mm at PT & TC, respectively).

FRGI EPS of $0.39 beat consensus of $0.37, marking the early beginnings of its comeback after missing expectations for the first time as a public company in 3Q. Although the company reiterated its '16 outlook, EPS comes in to better reflect additional guidance provided for D&A. The ‘16/17E EPS projection drops to $1.75/2.05 (from $1.80/2.15).

The PT drops to $50 (from $57) given the estimate reduction & multiple compression in the group. The new target is 12x '16E EBITDA,

For an analyst ratings summary and ratings history on Fiesta Restaurant Group click here. For more ratings news on Fiesta Restaurant Group click here.

Shares of Fiesta Restaurant Group closed at $37.46 yesterday.

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