Wedbush: Del Taco Could Meet Lower End Of Guidance Despite Slow Start To Q3

Del Taco Restaurants Inc TACO reported mixed second-quarter results and gave lukewarm quarter-to-date commentary for the third quarter.

Despite these developments, the company is likely to meet at least the low end of its same-store sales and margin guidance, according to Wedbush.

The Analyst

Wedbush’s Nick Setyan maintained an Outperform rating on Del Taco while lowering the price target from $14 to $13.

The Thesis

Despite lower comps, Del Taco was able to report second-quarter EPS in-line with expectations, at 13 cents.

Management indicated a comp deceleration through the first three weeks of July. Despite the slower start to the third quarter, the analyst believes the company would be able to generate low-single-digit same-store sales growth through 2019, against easing comp in the back half of the year.

Management reiterated underlying margin guidance of 18.1%-18.6% and EBITDA of $66.5-$69 million. Setyan expects Del Taco to meet at least the low end of its margin and EBITDA guidance.

The analyst also expects the company to continue repurchasing shares, with $22.3 million remains on the current authorization of $75 million.

Setyan added that the estimates had not been revised, but the price target had been reduced “largely on lower peer multiples.”

Price Action

Shares of Del Taco dropped more than 5.5% to close Tuesday at $12.13.