Piper Jaffray Upgrades BJ's Restaurants, Fiesta, Says 2018 Is 'The Year Of The Restaurant'

"The year of the restaurant" is 2018, as the industry benefits from a notable improvement in sales performance and heightened M&A activity supports strong valuation multiples, according to Piper Jaffray.

The Analyst

Piper Jaffray's Nicole Miller Regan upgraded BJ's Restaurants, Inc. BJRI from Neutral to Overweight with a price target lifted from $75 to $76.

The analyst upgraded Fiesta Restaurant Group Inc FRGI from Underweight to Neutral with a price target lifted from $24 to $28.

The Thesis

Opportunities for investors will always exist within the restaurant sector, but the opportunity is even greater in 2018, Miller Regan said. (See her track record here.) 

The current opportunity comes ahead of an eventual expansion cycle in the restaurant industry that will prompt higher investor interest over time, the analyst said. Companies with a domestic focus and company-owned models are likely to outperform, while names with smaller market capitalization could see notable upside given their "strategically interesting" nature, she said. 

BJ's: Restaurants

BJ's Restaurants, an owner-operator of 200 restaurants known for handcrafted beers and a full food menu, continues to drive sales at a time when management said it will slow down its pace of unit growth to better focus on operations and menu innovation, Miller Regan said.

Same-store sales quarter-to-date are in the 5-percent-plus range, and the casual dining segment as a whole is seeing "solid performance," according to third-party data, the analyst said. 

The revised $76 price target is based on a 12 times multiple (down from 13 times) on a higher fiscal 2019 EV/EBITDA estimate of $134 million (versus $131 prior).

Fiesta Restaurant

Fiesta Restaurant, the parent company of Pollo Tropical and Taco Cabana, is showing signs of recovery based on recent comp trends, Miller Regan said. July comps at Pollo Tropical rose 2.2 percent due to new product introductions that were well-received by consumers, she said.

Taco Cabana comps were up 8.8 percent, with notable strength coming from a brand relaunch initiative, Miller Regan said. 

Looking forward, continued investments in the business — including delivery, category, digital and improved speed of servic — should support continued traffic gains, she said. A bullish stance on the stock can't be justified yet, as the company needs to demonstrate greater visibility ahead of both brands facing more difficult comparisons, in Piper Jaffray's view. 

Price Action

Shares of BJ's Restaurants were 1.99 percent higher at $67.59 at the close Friday, while shares of Fiesta Restaurant Group were up 8.43 percent at $28.05. 

Related Links:

Benzinga's Top Upgrades, Downgrades For October 5, 2018

Who To Choose In Fast Food? KeyBanc Sizes Them Up