This Restaurant Brand Could 'Quadruple' Its Store Base, Analyst Says

Shares of First Watch Restaurant Group Inc FWRG have been under pressure after the company reported weak quarterly sales.

The company enjoys a leadership position and continues to scale in the daytime dining category, according to Benchmark.

Analyst Todd Brooks initiated coverage of First Watch Restaurant Group with a Buy rating and price target of $23.

The First Watch Restaurant Group Thesis: The company benefits from "strong unit economics," with more than 10% growth in units every year, Brooks said in the initiation note.

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For new units, First Watch Restaurant has third-year AUVs (average unit volumes) of $2.6 million, with restaurant level margins of 18%-20%, the analyst stated. With new locations recording a net cost-to-build of $1.6 million, the third-year cash-on-cash returns for newly built units is around 35%, he added.

Growing brand awareness could provide "a multi-year tailwind" to same-store sales and AUV growth, Brooks said. "With a category leading market share position, but only 12% aided brand awareness, continued buildout of the First Watch footprint should drive higher brand awareness and revenues," he further wrote.

First Watch Restaurant has the "runway to quadruple current store base," the analyst stated.

FWRG Price Action: Shares of First Watch Restaurant Group had declined by 0.73% to $16.98 at the time of publication on Tuesday.

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