Bojangles Is One Of KeyBanc's Best Growth Ideas (And Its Chicken Is Good Too)

In a report issued Thursday, KeyBanc analysts Chris O'Cull and David Carlson reiterate an Overweight rating and $32.00 price target on shares of Bojangles Inc (NASDAQ: BOJA), arguing that the name provides one of the more convincing growth ideas within their coverage universe.

The experts express confidence in the near-term SRS, margin, and EPS outlook and model long-term annual EPS growth in the 15 to 20 percent range, driven by unit growth of 8 percent, LSD SRS gains, moderate margin expansion and plenty of room for expansion in the Southeast – the firm sees potential for more than 1,400 units or more than double the current system size.

In their opinion, the company’s unit growth prospects justify a premium valuation, which can be maintained for a long period of time. The unit growth potential “adds visibility to the long-term EPS growth outlook, high free cash flow conversion, and near-term operating momentum.”

O'Cull and Carlson go on to comment that they believe some investors fail to fully appreciate the compelling returns that Bojangles’ new units generate, “and the strong commitment from existing franchisees to build restaurants in core and adjacent markets.”

An analysis of unit expansion indicates franchisees could achieve “compelling returns in core and adjacent markets using leased or funded debt financing.”

Furthermore, the analysts estimate these returns are at least as attractive to other QSR chains like Popeyes Louisiana Kitchen Inc (NASDAQ: PLKI).

Zagat Agrees

As recently as 2012, Bojangles ranked among the top five large chain restaurants for food in Zagat's Survey of Favorite Fast-Food chains.