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3 Reasons Credit Suisse Cut Zoe's Kitchen To Underperform

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  • Shares of Zoe's Kitchen Inc (NYSE: ZOES) have declined 20.6 percent over the past six months, hitting a low of $30.44 on November 17.
  • Jason West of Credit Suisse has downgraded the rating on the company from Neutral to Underperform, while lowering the price target from $36 to $27.
  • The downgrade is based on three key concerns regarding the stock’s story, including same-store sales trends, margins and valuation.

Analyst Jason West explained, “While ZOES may be well-positioned for long-term success, the extreme valuation premium to the group against a slowing consumer backdrop and more risk-averse market do not bode well for stock performance.”

Although still healthy, same-store sales trends have been slowing steadily since 2012, as compared to the accelerating growth being witnessed by the broader market. This has led to a contraction in Zoe’s Kitchen’s same store sales outperformance, from 1,000 bps in 2012 to 240 bps in 2015 versus the restaurant sector.

“SSS need to accelerate in 4Q to meet consensus even though 1) the compare is ~200bps tougher, 2) 3Q trends slowed through the period, and 3) the consumer backdrop has worsened,” West stated.

West also expressed concern that the company being unable to drive meaningful incremental earnings despite healthy same-store sales means that it would be even more difficult to drive earnings growth as same-store sales slow.

Latest Ratings for ZOES

DateFirmActionFromTo
Nov 2017BairdMaintainsNeutral
Nov 2017JefferiesUpgradesHoldBuy
Aug 2017Credit SuisseMaintainsUnderperform

View More Analyst Ratings for ZOES
View the Latest Analyst Ratings

Posted-In: Credit Suisse Jason WestAnalyst Color Short Ideas Downgrades Price Target Analyst Ratings Trading Ideas

 

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