Morgan Stanley Initiates Coverage On El Pollo Loco

Shares of El Pollo Loco (NASDAQ: LOCO) are trading lower in Tuesday's pre-market session. Morgan Stanley analyst Jake Bartlett came out after the quiet period expiration and initiated Loco at Underweight with a $22 price target.

Bartlett feels Loco is richly priced for its growth and that current valuation understates the risks. He makes three different cases for the stock price, highlighted below:

Pollo en Fuego: Bull Case-$38 price target

"For our bull case to unfold, LOCO would have to outperform our expectations on all measures, giving investors confidence in upside to initial growth targets while continuing to out-comp competitors."

Pollo Bueno: Base Case-$22 price target

"Our base case assumes steady execution of the unit growth plan while maintaining healthy (low-to-midsingle) digit comps in the near term."

Pollo Muertos: Bear Case-$13 price target

"Lower-than-expected volumes in new markets like Houston and sharply decelerating comps would signal more limited expansion opportunities, driving sharp
multiple contraction."

Shares of El Pollo Loco traded recently at $31.50, down five percent.