LOCO - El Pollo Loco: Franchising Growth Drives An Undervalued Growth Strategy

2024-07-12 04:57:15 ET

Summary

• El Pollo Loco operates and franchises restaurants, with the strategy turning more into franchised restaurants.
• The franchising growth provides capital light, low-risk earnings growth with proceeds from company-owned restaurant divestitures into franchisees.
• The downward long-term margins should reverse with greater franchising margins, franchised locations' better long-term comparable sales performance, and identified cost savings.
• Q1 showed an impressive comparable restaurant growth in a slowly performing restaurant industry, with the momentum carrying onto April as well.
• The stock's valuation seems to undervalue the expansion strategy.

El Pollo Loco Holdings, Inc. ( LOCO ) operates and franchises restaurants under the El Pollo Loco name, with 172 company-operated restaurants and 323 franchised restaurants at the end of Q1 . The company’s quick-service restaurants provide grilled chicken, tacos, burritos, and a wide range of other menu items . The company still currently operates mainly in California, but also in other states, with plans for a nationwide expansion....

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