A Closer Look at AFC Enterprises

On March 21th, Popeyes Louisiana Kitchen, a division of AFC Enterprises

, invited guests to help celebrate with a deal for eight pieces of its famous BONAFIDE bone-in fried chicken, spicy or mild, for just $5.99. Good deal, right? Let's follow it to have a bit look at its stock. AFC Enterprises develops, operates, and franchises quick-service restaurants under the trade names of Popeyes Chicken & Biscuits and Popeyes Louisiana Kitchen. As of December 25, 2011, it operated and franchised 2,035 Popeyes restaurants in 45 states, the District of Columbia, Puerto Rico, Guam, the Cayman Islands, and 25 foreign countries. The company was founded in 1972 and is headquartered in Atlanta, Georgia, and now it's the world's second-largest fast food chicken chain.

From the financials above, we can see that though AFCE's quarterly revenue growth is less than average, while its gross margin and operating margin is much higher than the average level. AFCE's stock price may be relatively cheap with respect to P/E ratio and PEG. Actually, from the chart indicating the change of P/E, AFCE's P/E ratio is maintained at a lower level. Why is that?

As we can see above from the income statement, the revenue from year 2008 is negative growth until 2011, which put high pressure on the outlook about the company. In addition, the leverage of the company is very high, 50% right now. And the ratio reaches 90% in 2008. Though the company is decreasing its debt level from then on and the interest coverage ratio is already 10.x, it's still fairy high for a company featuring fast food restaurant. For example, Buffalo Wild Wing

has no debt at all. But it seems the hardest winter for AFCE has already passed. As time goes by, and the US economy picks up, the revenue growth rate will continue will become crucial for AFCE.

As with many major fast food restaurants, such as Buffalo Wild Wing, Darden Restaurant

, Popeyes Louisiana Kitchen, a division of AFC Enterprises Inc. is looking to grow in Tampa Bay. The expansion plan includes 18 new restaurants over the next five years. The Popeyes development team will host an executive roundtable in Tampa on March 29 to discuss owning a Popeyes' restaurant.