Stifel Downgrades Pollo Loco Based On Weak Comps Forecast

Loading...
Loading...

The US economy is likely to slide into recession within the next three to nine months, Stifel’s Paul Westra said in a report. He changed his view on the monolithic Restaurant Group to “Bearish” from “Bullish,” and downgraded the rating on El Pollo LoCo Holdings Inc LOCO from Buy to Hold.

Analyst Paul Westra mentioned that restaurant stocks were “monolithic,” since about 75 percent of the stocks tend to outperform or underperform together throughout a business cycle.

Reasons For Turning Bearish

Westra mentioned three reasons:

  1. In 2Q16, there was a simultaneous comp deceleration across every industry sector, pointing towards a prolonged dining-out slowdown.
  2. Historically, Restaurants have suffered more than two years of margin-contracting Relative Pricing Power at the beginning of dining-out declines, “as discounting quickly ratchets-up in the face of declining sales.”
  3. In the year preceding the last three US recessions, on average Restaurant stocks have lost 23 percent, versus 10 percent in the S&P 500.

Call On LOCO

“We have grown extremely cautious on the restaurant industry as a whole, and today we downgrade LOCO from Buy to Hold mainly to reflect our bearish Macro Sentiment (w/ 1Q16/2Q16 industry comps of just +1.5%/+0.7% (or below key +2% threshold)); and (2) limited earnings/comp upside opportunity ahead of likely US recession,” the analyst wrote.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!

Loading...
Loading...
date
ticker
name
Price Target
Upside/Downside
Recommendation
Firm
Posted In: Analyst ColorDowngradesAnalyst RatingsPaul WestraStifel
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!

Loading...