Stephens Says Carrols Restaurant Group's Acquisition And Margin Opportunity 'Remains Large'

In a report published Tuesday, Stephens analyst Will Slabaugh reiterated an Overweight rating on Carrols Restaurant Group, Inc. TAST with a price target raised to $12 from a previous $11 following investor meetings with the company's Chief Financial Officer Paul Flanders. Carrols Restaurant Group is the largest Burger King franchisee in the United States with over 650 restaurants. In 2014, the company acquired 123 Burger King stores but have scaled back its activities in 2015 due to a lack of excess capital. According to Slabaugh, the company's recent debt refinancing (which added roughly $35 million in additional capital) has now positioned the company to add as many as 25-50 new stores before the end of 2015. Looking forward, Slabaugh noted that once the accelerated store remodels are completed by mid-2016, the company is expected to dip in to its cash flow from operations to acquire an additional 75 to 100 stores that could be accretive by $5.6 million to $7.5 million annually. Slabaugh also noted that "significant" synergy opportunities remain for "virtually every" acquisition that the company has made and that remain in the marketplace. There are also multiple economies of scale that can be gained throughout the operating lines of the P&L, in addition to corporate level leverage through adding stores onto an "efficient" operating platform. Bottom line, the analyst came away from his investor meeting with further confidence as stock outperformance can come from accretive acquisitions, meaningful improvement in new store profitability and softer-than-expected beef costs, which could be the beginning of a multi-year tailwind versus expectations.