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Actionable news in LOCO: EL POLLO LOCO HOLDINGS Inc,

Stifel Downgrades Pollo Loco Based On Weak Comps Forecast

The US economy is likely to slide into recession within the next three to nine months, Stifel’s Paul Westra said in a report. He changed his view on the monolithic Restaurant Group to “Bearish” from “Bullish,” and downgraded the rating on El Pollo LoCo Holdings Inc LOCO 5.26% from Buy to Hold.

Analyst Paul Westra mentioned that restaurant stocks were “monolithic,” since about 75 percent of the stocks tend to outperform or underperform together throughout a business cycle.

Reasons For Turning Bearish

Westra mentioned three reasons:

  1. In 2Q16, there was a simultaneous comp deceleration across every industry sector, pointing towards a prolonged dining-out slowdown.
  2. Historically, Restaurants have suffered more than two years of margin-contracting Relative Pricing Power at the beginning of dining-out declines, “as discounting quickly ratchets-up in the face of declining sales.”
  3. In the year preceding the last three US recessions, on average Restaurant stocks have lost 23 percent, versus 10 percent in the S&P 500.

Call On LOCO

“We have grown extremely cautious on the restaurant industry as a whole, and today we downgrade LOCO from Buy to Hold mainly to reflect our bearish Macro Sentiment (w/ 1Q16/2Q16 industry comps of just +1.5%/+0.7% (or below key +2% threshold)); and (2) limited earnings/comp upside opportunity ahead of likely US recession,” the analyst wrote.

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Jul 2016Stifel NicolausDowngradesBuyHold
Apr 2016SunTrust Robinson HumphreyDowngradesBuyNeutral
Jan 2016Sidoti & Co.Initiates Coverage onBuy

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