On Wednesday, Stifel, a financial services firm, downgraded Portillo's, Inc (NASDAQ: PTLO) stock from Buy to Hold, setting a price target of $13.00. The adjustment followed the company's report of disappointing same-restaurant sales (SRS) and customer traffic, despite earnings before interest, taxes, depreciation, and amortization (EBITDA) surpassing Stifel's estimates.
The downgrade was influenced by several factors. Concerns were raised about the potential for Portillo's traffic performance to improve in 2025 without an increase in overall consumer spending.
The analyst expressed reluctance to assume a rise in consumer spending would occur. Additionally, there's skepticism regarding the company's strategy, which has not been adjusted despite segment trends and a decrease in transactions.
Portillo's current approach to value, which includes affordable bundles and low price points, has been questioned by the firm. Stifel noted that as the brand continues to experience declining transactions, it may become increasingly difficult and costly to reverse this trend, as the company risks falling out of consumer consideration sets.
Finally, the firm justified its new rating by pointing out that Portillo's shares are trading near the $13 target price. Given the expectation that revenue estimates might need to be lowered, Stifel finds it challenging to argue for a higher valuation of Portillo's stock.
In other recent news, Portillo's Inc. reported third quarter results, with revenue falling short of analyst expectations. The company posted a revenue of $178.3 million, missing the consensus estimate of $182.31 million. However, it exceeded expectations with adjusted earnings per share at $0.11, surpassing the projected $0.06.
Despite the decline in same-restaurant sales by 0.9% year-over-year, Portillo's managed to increase its operating income to $16.0 million, a slight rise from $15.1 million in the same quarter the previous year.
Moreover, the company increased its net income to $8.8 million, up from $6.5 million a year ago. In terms of future projections, Portillo's anticipates a decline in same-restaurant sales by approximately 1% for fiscal 2024, maintaining its restaurant-level adjusted EBITDA margin target of 23-24%.
The company also reported the opening of four new restaurants during the first three quarters of 2024 with plans to launch five additional ones in December. This will bring the total new openings to 10 for the year.
InvestingPro Insights
Recent InvestingPro data provides additional context to Stifel's downgrade of Portillo's (NASDAQ: PTLO). Despite the company's market cap of $990.64 million, Portillo's has shown mixed financial performance. The company's revenue growth of 11.98% over the last twelve months and a strong EBITDA growth of 29.37% in the same period suggest some positive momentum. However, these figures align with Stifel's observation of EBITDA surpassing estimates.
InvestingPro Tips highlight that Portillo's is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of 0.53. This could indicate potential undervaluation, contrasting with Stifel's view on the stock's current price. However, another tip notes that the stock price movements are quite volatile, which may justify Stifel's cautious stance.
Interestingly, InvestingPro data shows a strong 39.5% return over the last three months, despite the YTD return being -15.32%. This recent performance surge might explain why Stifel sees limited upside at the current price level.
For investors seeking a more comprehensive analysis, InvestingPro offers 6 additional tips for Portillo's, providing a deeper understanding of the company's financial health and market position.
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