The Pieces Are Falling In Place For Kona In '16

• The share price of Kona Grill Inc KONA has appreciated 9.89 percent over the past one month after having declined 31.57 percent through 2015.
• Wedbush’s Nick Setyan has reiterated an Outperform rating and price target of $25 on the company.
• Setyan believes that the stock is well positioned to trade at a premium to its growth peers given the increasing investor awareness of Kona Grill’s best-in-class growth metrics and outperformance of 2016 expectations.

Regarding Kona Grill, Analyst Nick Setyan mentioned that drivers were in place for the company to see higher-than-expected comp reacceleration, while stating that the unit-specific issues that had pressured same store sales growth in 2015 were set to wane in 2016.

The maturation of new units could prove to be an additional upside driver for Kona Grill, with new units continuing to trend ahead of the year three unit-level margin targets.

“We estimate the classes of 2014 and 2015 openings could each provide a unit-level margin tailwind in 2016 of up to 20-50 bps and 30-65 bps, respectively, as they mature,” Setyan stated

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Market Has 'Underappreciated' Kona Grill

According to the Wedbush report, the market has been underappreciating the company’s new store performance, with new units outperforming management targets and growth of peer casual dining concepts.

“With an attractive pipeline of signed leases in place, we expect new unit outperformance to continue,” the report said.

In addition, Setyan expects Kona Grill’s G&A leverage to resume in 2016, along with steady-state free cash flow per share run rate of $2.15 exiting 2016.