Citi analyst issues 'Buy' rating on Burger King

Citi analyst says Burger King making the right moves, starts coverage at 'Buy'

Associated Press

NEW YORK (AP) -- Burger King's push to revamp its image with new food and drinks, better advertising and renovated restaurants is positioning the fast-food chain for long-term growth, a Citi analyst said Thursday.

Citing such efforts by the new management team, analyst Alvin Concepcion initiated his coverage on the Miami-based chain at "Buy." His price target was $20, representing a 19 percent premium on the $16.80 stock price.

Concepcion noted that Burger King is poised to increase sales at restaurants open at least a year 3 percent over the next three years, with the number of restaurants set to grow by the same amount. He also cited Burger King's international growth potential as a positive for investors. With more than 12,500 locations, Burger King is the world's second-largest hamburger chain in terms of units. McDonald's is the biggest with about 34,000 locations around the globe.

After being taken private by 3G Capital in 2010, Burger King has focused on cutting overhead costs and improving relations with franchisees. This spring, the chain launched its biggest-ever menu revamp with the addition of fruit smoothies, snack wraps and specialty coffees. Soon after, it announced that it would return to the New York Stock Exchange through an unusual deal with Justice Holdings, which was set up as a shell to invest in another company.

Justice paid 3G Capital $1.4 billion for a minority stake in the company. 3G Capital retained a 71 percent stake, meaning that on paper, it has more than earned back the $3.26 billion it paid for Burger King in 2010. As part of the deal, 3G said it would hold onto its stake for at least six months, while Justice said it would hold onto its stake for at least a year.

Since then, the chain has continued its push to attract diners with a number of limited time offers and promotions. Even with encouraging sales trends, however, Concepcion noted that Burger King has a "checkered" business history and that short-term trends could be choppy.

Shares of Burger King were down 6 cents at $16.80.

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