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Wedbush Remains A Del Taco Bull Despite Disappointing Quarter

Jayson Derrick

Mexican-American quick service restaurant chain Del Taco Restaurants Inc (NASDAQ: TACO) reported disappointing third quarter results Monday afternoon which could result in a "realistic bar" moving forward, according to Wedbush.

The Analyst

Wedbush analyst Nick Setyan maintains an Outperform rating on Del Taco with a price target lowered from $13 to $11.

The Thesis

Del Taco's management offered some fourth quarter to date commentary which points to a sequential improvement in comp trends, Setyan wrote in a note. In addition, management's full-year 2019 same-store sales growth guidance of 1.0% (prior low-single-digit) still suggests a slight improvement on a two-year comp basis.

Same-store sales growth in 2019 can be achieved through management's continued focus on value ($2 for three items and $2 breakfast wrap), along with new menu items like plant-based alternatives, Carnitas, and Pork Tamales. Beyond 2019 the company can benefit from a menu price increase and the launch of a third-party delivery platform (DoorDash in Q4).

Management's low-end of 2019 margin guidance range of 17.1% to 17.4% looks realistic and the same can be said for management's EBITDA guidance range of $63 million to $65 million.

View more earnings on TACO

Finally, the research firm's revised $11 price target is based on 9.3 times EV/EBITDA on 2020 EBITDA estimates which represents a 10% discount to regional peers. The discounted valuation implies upside from current levels but also factors in a lower franchised mix and lower EBITDA and same-store sales growth.

Price Action

Shares of Del Taco were trading lower by more than 15% Tuesday and hit a new 52-week low of $8.12.

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Latest Ratings for TACO

Date Firm Action From To
Oct 2019 Maintains Outperform
Oct 2018 Maintains Buy Buy
Oct 2018 Downgrades Buy Neutral

View More Analyst Ratings for TACO
View the Latest Analyst Ratings

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