Wedbush Turns Bullish On Habit Restaurants Ahead Of Q2 Report

The bullish case for Habit Restaurants Inc HABT, the fast casual restaurant concept known or its fresh and made-to-order burgers and sandwiches, can now be made ahead of Wednesday's earnings report, according to Wedbush.

The Analyst

Wedbush's Nick Setyan upgraded The Habit Restaurants from Neutral to Outperform with a price target lifted from $10 to $15.

The Thesis

Wedbush's first-hand checks suggests Habit Restaurants will deliver a same-store sales beat against the Street's estimate of negative 0.5 percent in Wednesday's print, Setyan said in a note. The better-than-expected performance is likely to come from a menu price increase in late May and the offering of delivery options through a third-party.

Beyond the second quarter, the Street is likely estimating the company's prospects for the bottom half of the year, the analyst wrote. By the end of the second quarter, for example, delivery options will be available at 150 units as opposed to just 10 units at the end of the first quarter. In fact, one incremental transaction from delivery per day would translate to 10 to 30 basis points of incremental same-store sales growth.

Delivery orders are priced 25 percent above in-store prices to compensate for delivery costs, which implies the potential for a unit-lever margin beat in the full year of 16.9 percent versus the Street's 16.6 percent.

Looking toward the longer-term, Setyan said the launch of a mobile app coupled with the addition of a new chief marketing officer could help the company realize a double-digit EBITDA growth as soon as 2019, up from 4.3 percent in 2018 and negative 10.7 percent in the year before.

Price Action

Shares of Habit Restaurants were trading higher by more than 12 percent at $12.68 Monday afternoon.

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