Fogo de Chao Is A Unique Growth Story, But Comps Have Slowed Down

Canaccord Genuity analysts Lynne Collier and Philip May think Fogo de Chao Inc (NASDAQ: FOGO) provides a unique growth story. However, the analysts are worried over the comps recording a slowdown in the recent past.

As a result, the brokerage initiated the shares of the company with a Hold rating and a price target of $13. The lead analyst expects it will take some time for the macro conditions to indicate improvements and thus take additional time for meaningful impact to show regarding its SSS.

The comments from the analysts come after the company reported an earnings miss for the second consecutive time in the second quarter.

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In its research note to clients, Canaccord said, "We believe there is much to like about FOGO: (1) differentiated brand within fine dining that generates significant FCF; (2) strong unit economics with AUVs of $8.5 million, restaurant-level margins of ~30 percent and cash-on-cash returns of ~50 percent; (3) a long runway of growth ahead with the potential to increase the store base by 3–4x."

However, the analyst prefers to stay on the sideline due to the comps slowdown. The brokerage expects several quarters to reverse the trend, citing less advertising power apart from a small-store base.

Canaccord's price objective indicates a possible 3percent upside potential. The brokerage arrived at its valuation based on 8X its 2017 EBITDA projection of $61.7 million.

At time of writing, Fogo De Chao was up 1.19 percent on the day at $12.75.

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