On Thursday, Jefferies adjusted its stance on Chuy's Holdings (NASDAQ:CHUY) stock, downgrading it from Buy to Hold and reducing the price target to $24 from the previous $38. The adjustment comes amid concerns about the restaurant chain's projected sales and traffic performance in comparison to its competitors.
The analyst from Jefferies cited a forecast that Chuy's same-store sales (SSS) and traffic would materially lag behind its peers through 2025. Additionally, the company's guidance for 2024 was deemed overly optimistic. The lack of significant initiatives to drive customer traffic was noted as a contributing factor to the downgrade.
Despite the downgrade, the firm acknowledged Chuy's Holdings' ability to maintain restaurant-level margins that are at or near the top of the industry, exceeding 19%. This financial stability, alongside the potential for an acceleration in unit growth to a high single-digit percentage range starting in 2025, was mentioned as a feasible outcome.
The new price target of $24 is based on approximately 6 times the company's estimated 2025 enterprise value to EBITDA (earnings before interest, taxes, depreciation, and amortization), which is at the lower end of Chuy's historical valuation range. This metric is a commonly used indicator of a company's overall financial performance and valuation in the market.
Chuy's Holdings, listed on NASDAQ under the ticker NASDAQ:CHUY, is now positioned with a Hold rating by Jefferies, reflecting a more cautious outlook on the company's near-term growth prospects in a competitive industry landscape.
In other recent news, Chuy's Holdings has been in the spotlight following its Q1 2024 earnings report and subsequent analyst reactions. The Tex-Mex restaurant chain reported a slight decrease in revenue to $110.5 million, largely attributed to a calendar shift.
Despite this, the company's earnings per share (EPS) of $0.42 surpassed both Stifel's and the consensus estimate of $0.36. However, Chuy's experienced a same-restaurant sales decline of 5.2%, steeper than anticipated by analysts.
Stifel responded by reducing its price target for Chuy's from $36 to $32, maintaining a Hold rating on the shares. Similarly, Piper Sandler adjusted its price target for Chuy's, reducing it to $31 from $35, while retaining a Neutral rating. Both firms cited softer near-term comparable sales trends as a reason for the adjustment.
Despite the challenges, Chuy's remains optimistic about its future. The company has reiterated its EPS guidance for the year, projecting between $1.82 and $1.87, and plans to open 6-8 new restaurants in 2024. Chuy's also expects to see improved trends in the second half of 2024 as new off-premise initiatives take hold and new menu items attract customers.
InvestingPro Insights
Following the recent analysis by Jefferies, InvestingPro offers additional insights into Chuy's Holdings that may be of interest to investors. The management's aggressive share buyback activity signals a confidence in the company's intrinsic value. Moreover, the stock's Relative Strength Index (RSI) suggests that it is currently in oversold territory, which could indicate a potential reversal or correction in price movement ahead.
From a valuation standpoint, Chuy's Holdings is trading at a low P/E ratio of 13.73, which is intriguing when paired with its near-term earnings growth potential. This is further supported by the company's adjusted P/E ratio for the last twelve months as of Q1 2024, which stands at 12.31. Additionally, the PEG ratio during the same period is notably low at 0.39, suggesting that the stock may be undervalued relative to its earnings growth expectations.
InvestingPro also highlights that Chuy's Holdings has liquid assets that exceed its short-term obligations, providing a cushion for operational flexibility. For investors seeking more comprehensive analysis, there are 11 additional InvestingPro Tips available, which can be accessed through the InvestingPro platform using the coupon code PRONEWS24 for up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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