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Habit Restaurants Inc (NASDAQ:HABT) was downgraded by Baird after it reported third-quarter results after the close Wednesday that analyst David Tarantino termed "disappointing."
The results indicated weaker-than-expected comps and continued cost headwinds, Tarantino said. Despite the top-line holding up amid a challenging industrial backdrop, the third quarter results showed that the company's earnings model has little margin for error in the current competitive backdrop, the analyst said.
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Baird downgraded Habit Restaurants from Outperform to Neutral and lowered its price target from $20 to $12.
At the time of writing, shares of Habit Restaurants were slumping 22.67 percent to $9.55.
The Irvine, California-based company reported a Q3 adjusted EPS of $0.01 against a $0.03 estimate and sales of $84.6 million, falling short of a $85.8 million estimate.
A Better Habit In The Long Term
The two main issues weighing on Habit Restaurant's fundamentals, namely competitive discounting and hefty cost inflation, are unlikely to abate in the coming quarters, Tarantino said. Notwithstanding management's efforts to tackle these issues, the analyst said visibility on better comps and profit momentum is lower.
Baird remains bullish on the longer-term growth potential of the business, with the firm seeing scope for a more positive rating if it gains confidence in near-term fundamentals, Tarantino said. Habit's prospective valuation metrics are reasonable for patient investors who are able to look past today's headwinds, the analyst said.
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Delving into the key third quarter numbers, Tarantino said the company's pro forma EBITDA was down 16 percent, well below the 2-percent drop estimated by the Street, primarily due to weaker-than-expected comps and EBITDA margins.
Habit lowered its full year guidance for revenue, comps and restaurant margin, according to Baird.
While remaining cautiously optimistic concerning the near-term, Taranto said there's risk that newer sales drivers such as increased advertising and innovating on value-oriented price points could take time to gain traction amid an intensifying promotional environment.
McDonald's Corporation (NYSE:MCD) is set to launch its national value platform in 2018, Tarantino said.
Baird lowered its EBITDA estimates by 13 percent for 2017 by 20 percent for 2018.
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Photo courtesy of Habit Burger.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.