Will El Pollo LoCo's Earnings Fly High Enough?

Shares of El Pollo LoCo Holdings Inc LOCO are up about 2.8 percent on Thursday afternoon, in anticipation of the announcement of the company’s first quarter financial results, after the bell.

According to Estimize, expectations point towards pretty much flat year-over-year earnings. The Street is modeling consensus earnings of $0.17 per share on revenue of $88.39 million, while the crowd projects earnings of $0.19 per share on revenue of $89.7 million.

These figures compare to the earnings of $0.18 per share on revenue of $81.43 million reported in the first quarter of 2014. However, these estimates do imply some quarter-over-quarter growth, since the company registered earnings of $0.14 on revenue of $89.97 million in the latest quarter.

The graph below illustrates the evolution of estimates over time. After experiencing a small surge in January, the Street’s sentiment remained flat. The crowd became slightly more bullish on Thursday.

What Analysts Think

A few research firms have weighed in on El Pollo LoCo recently. William Blair reiterated and Outperform rating on the stock, Zacks downgraded it from Buy to Hold, Jefferies did the opposite (upgraded it from Hold to Buy), and Baird boosted its rating from Neutral to Outperform. The last two firms also set respective price targets of $27 and $34. The stock currently trades around $29.

In a recent article, analysts at Zacks also point out a few factors to consider ahead of El Pollo LoCo’s earnings. The company started trading in July, 2014, and has reported results for three quarters since, managing to retrieve positive comps in all of them. “The company’s fresh handcrafted Mexican inspired cuisine has helped to increase average check size and traffic. Menu innovation and limited time offers have been contributing to comps,” the analysts explain.

“However, increasing food costs due to higher chicken prices and higher labor costs as a result of higher minimum wages in California would keep profits under pressure. Meanwhile, in order to offset the higher food and paper costs, the company increased its menu price in Feb 2015, which would hurt traffic.”