Morgan Stanley Upgrades El Pollo Loco As Valuation Comes Down To Earth

In a note out this morning, analyst John Glass of Morgan Stanley upgraded shares of El Pollo Loco Holdings

to Equal Weight based on valuation. He raised the price target from $23 to $25 on the shares, feeling a recent refinancing will add approximately 10 percent to 2015 EPS. Mr. Glass further states: "While we have always been proponents of LOCO as a strong regional brand with sound expansion plans, valuation kept us cautious as the post IPO valuation made shares the most expensive even of its highest growth peers. Now at 39x our '15 EPS estimate, the shares are trading at only a 6% premium to peers such as FRGI, vs. 130% during the post-IPO peak, as increased float (not fundamental concerns) normalizes valuation." He feels the fundamental story is still intact, and valuations are now in line with fast casual average, which Mr. Glass views as reasonable. Shares of LOCO are trading up 3.5 percent at 26.40 in pre-market tarding, above the $25 price target.