Wunderlich Initiates Coverage On Chuy's Holdings, Notes Weak 2014 Adds Uncertainty To 2015

Robert Derrington of Wunderlich Securities initiated coverage of Chuy's Holdings Inc (NASDAQ: CHUY) on Tuesday with a Hold rating and $22 price target.

“As one of the restaurant industry's fastest growing companies, we believe Chuy's Holdings holds the potential for considerable appreciation potential driven by strong growth prospects for its popular, high-energy Tex-Mex concept, its traditionally strong average unit sales and store-level returns, and its considerable runaway for domestic growth,” Derrington wrote in a note. The analyst adds that despite all that, the company may use 2015 as a “re-positioning year” following weaker than expected trends in 2014.

Derrington notes that during the company's third quarter (September) results, management lowered its full year fiscal 2014 earnings per share guidance due to high food inflation and weak returns from some non-comp stores. The analyst believes that the company will spend 2015 improving the returns of its weaker-performing units and focusing on newer stores in more predictable, developed markets.

Derrington does state that after management stabilizes the company's operating performance and predictability of newer units, shares would warrant a higher valuation.