LEVY and TACO management started investor road show after the earnings last week.
Fund managers are buying this now. Two investment groups filed SEC 13F in the last week adding TACO.
SHAK after hours more than $6 making market cap of $3B for a Q1 revenue of $37M .. .worse than internet bubble.
Market cap now over $2.5B
LOCO reports 5/14, $89M revenue $1.1B market cap
Should be good week for TACO.
LOCO current market cap $1.1B and they are expected to post revenue of $88.3M for the quarter compared to $94M for TACO.
TACO currently at $280M market cap. LOCO earnings might further propel TACO more than LOCO itself.
Market in General: There are two schools of thought on market right now. One group thinks, market is totally over bought beyond fundamentals, in bubble territory, rest of world in recession and hence looking for correction. While the other group thinks, Europe is coming out of recession (instead of going into one), China cut interest rates 3 times (latest one today), Fortune 500 companies are stuffed with highest levels of cash (ever) and ready to buyback on any weakness, lower commodity prices helping generate significant cash for most industrial companies resulting in market going higher.
There may be a small correction (if any) but market will shoot back up to much higher levels in no time (instead of slow recovery last time). In fact, my call would be market breaking highs next week.
TACO: This is just getting started on turn around cycle. While TACO has the second highest number of locations, it barely makes money now because of 1) large debt at high-interest rate (13%). TACO just paid off partial debt recently with $ from LEVY which will only start to show the impact in Q2 (Q1 will still be bad). Because of this bad debt situation, they partnered with LEVY and made a deal.
Second issue with TACO is the average check at $6.49. Del Taco is serving Chipotle type of food at less than Tacobell prices resulting in not so great margins. TACO is not losing money but not making either beyond requiring to pay their debt. Del Taco might open 400 more stores in the next 18 months but will have to work on increasing the check size.
If we compare to peers TACO looks great at EBITDA level but looks pathetic at EPS.
Once merger is complete, I expect $550M-$600M valuation and as they improve the financials and continue the expansion, market cap should increase accordingly. Investors holding warrants (TACOW) will benefit most short term and TACO shareholder will benefit long term.
Sentiment: Strong Buy
tendered shares are locked up and not available to trade and also to short.
In couple of days most of the shares will be returned minus 15 percent . Traders who purchased for the sole purpose of tendering will dump and leave. Happens all the time.
better to wait on the sidelines for a week.