Barclays On Bojangles: It's A 'High Growth Regional QSR Anomaly'

In a report published Tuesday, Barclays analyst Jeffrey A. Bernstein initiated coverage of

with an Equal-Weight rating and price target of $27. Bojangles' stock has appreciated by over 47 percent since the company's IPO as compared to an increase of about 1 percent in the S&P over the same period. "We believe the stock is fairly valued, with consistent outsized unit growth supported by low-to-mid-single-digit comp growth," analyst Jeffrey A Bernstein mentioned. Chicken ‘n Biscuits, sweet tea and lots of breakfast have supported outsized comps and justified outsized unit growth for a regional QSR. "And while questions are large on the potential for the southeast brand to grow national, such does not seem to be a near-term constraint. We believe management offered realistic top & bottom-line guidance, not unlike what has been consistently achieved in recent years," Bernstein added. The company has guided to mid teens EPS growth over the long term. The 10 percent revenue growth is supported by 7-8 percent unit growth and 2-3 percent comp growth. Although the 60/40 franchise/company mix is an anomaly, Bernstein expects an increase in the company's franchise mix over time with benefits from a "build-to-suit model" boosting growth. "Looking to profits, expect restaurant margin to resume its modest upward trajectory, post pressure in '15 related to lapping outsized comp and current cost pressures," Bernstein said. In the report Barclays noted, "BOJA has a strong ‘core' Carolina presence, but recognition and therefore financial performance in ‘adjacent' markets (2/3's of future opens with AUV's ~25% lower) are more challenging. Category competition is intense, all battling for market share."