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El Pollo Loco (LOCO) Shares Continue to Soar After IPO

Zacks Equity Research

Share price of El Pollo Loco Holdings, Inc. (LOCO) surged 43.5% to $34.5 on Jul 28, after it debuted on Nasdaq on Jul 25. On Jul 24, 2014, the company had announced an initial public offering (IPO) of 7.1 million shares at $15 per share (top end of the marketed range of $13 to $15 per share) and began to trade under the ticker symbol “LOCO” on Friday, Jul 25.

LOCO's share price surged more than 50% on Friday. This California-based company raised $107 million in its U.S. initial public offering. The company intends to use the proceeds to pay its debt.

Shares of this fire-roasted chicken specialist company soared 125% in the first two days of trading. We would like to remind investors that this massive surge may be temporary and shares can experience a decline after this huge surge.

Some analysts believe that this upsurge reflects investor confidence in the company as it resembles the highly successful Chipotle Mexican Grill, Inc. (CMG) and serves Mexican-style food in large portions. Per Motley Fool, its comps were better than Chipotle Mexican Grill in 2012 and 2013.  However, serving Mexican-style food cannot be considered a good enough reason to believe that El Pollo Loco can emulate the success of Chipotle Mexican in the long run.

Currently, this Mexican-style grilled chicken restaurant has over 400 locations across 5 states, with majority of them in California. The company opened 7 new stores in 2013 and plans to open up to 16 in 2014. The company intends to expand the number of restaurants in the range of 8% to 10% annually, including both company-owned and franchise-based restaurants. It targets 2,300 U.S. restaurants in the long-term.

The company was recently named as the best-tasting fast food chicken restaurant in the country. Though the company has adopted an attractive menu and strong initiatives to boost sales, El Pollo Loco would face the same headwinds as other food chains and chicken brands like Yum! Brands, Inc. (YUM) and Burger King Worldwide, Inc. (BKW).

Read the Full Research Report on LOCO
Read the Full Research Report on YUM
Read the Full Research Report on CMG
Read the Full Research Report on BKW

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