One of the largest restaurant companies in the U.S., Carrols Restaurant Group, Inc. TAST, operates three restaurant brands in the quick-casual and quick-service restaurant segments. It is also the largest Burger King franchisee, based on the number of restaurants. This Zacks Rank #2 (Buy) company has good prospects and should make a value addition to your portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings & Revenue Growth
Carrols Restaurant makes for a great pick in terms of Growth Investment. Arguably, nothing is more important than earnings growth as surging profit levels are often an indication of strong prospects (and stock price gains) ahead for the company in question.
While Carrols Restaurant has put up a historical EPS growth rate of 14.6%, investors should really focus on the projected growth. Here also the company is looking to continue growing at a rate of 14.6% in comparison with Zacks categorized Retail-Restaurants industry’s average which calls for EPS growth of 11.6%.
Solid revenue growth is expected to propel the company’s earnings forward. The projected sales growth stands at 7.1%, while the broader industry’s estimate stands at just 4.6%.
For all these reasons the company currently has a Growth Score of ‘A’, ranking in the top 20% on our style score system that helps us to identify potential outperformers.
Valuation Looks Rational
Carrols Restaurant has a Value Style Score of ‘A.’ The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount.
Looking at the sales of the company, it is currently trading at a P/S ratio of 0.53, much lower than the industry average which stands at 1.20. Some people like this metric more than other value-focused ones because sales are harder to manipulate with accounting tricks than earnings.
The PEG ratio is also an important indicator as this metric looks to show investors how much they are paying for each unit of earnings growth. Carrols Restaurant impresses here too, as its PEG stands at 1.27 while the industry’s average is 1.53.
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. Carrols Restaurant has a P/CF of 7.04, lower than the industry’s average of 11.08.
All these ratios deem the company undervalued in comparison to its industry peers and indicate a good time to buy.
Stock Price & Other Returns
Shares of Carrols Restaurant have returned nearly 33% over the past year, widely outpacing the industry, which grew less than 1% in the same time frame. While any stock can see a spike in price, it takes a real winner to consistently outperform the market. We noticed that Carrols Restaurant has outperformed the industry in each of 4-week, 12-week and 52-week time frames.
Moreover, the Return on Equity delivered in the trailing 12 months was an impressive 12.6%, while the industry returned 8.4%.
Earnings History and Future Estimates
Carrols Restaurant has beaten earnings estimates in three of the trailing four quarters, with an average beat of 159.72%.
Furthermore, upward estimate revisions reflect optimism in the stock’s prospects. Analysts have bumped up their earnings estimates for the current quarter and full-year 2017 by 11.1% and 1.7%, respectively over the past month.
Negative Beta Stock
Traditionally, stocks with beta less than one are preferred to be added to portfolios as they do not fluctuate as much as the market. However, these stocks move in the same direction as the market, so cannot provide full relief in case the market moves adversely. This is where negative beta stocks come in.
A stock like Carrols Restaurant which has a beta of -0.11, moves in the opposite direction to the market. In a falling market, negative beta investments provide a hedge because they tend to increase in value. Thus, Carrols Restaurant will make for a good addition to portfolios designed to mitigate risk and limit losses.
Carrols Restaurant is expected to perform well in the quarters ahead based on all these statistics. However, investors should be cautious of higher labor costs and remodeling costs that could hurt the company’s margins. A challenging sales environment is hurting most restaurateurs including Brinker International, Inc. EAT, YUM! Brands, Inc. YUM, Darden Restaurants, Inc. DRI, to name a few. Nevertheless, we are hopeful on the stock’s prospects going ahead, and its ability to hedge overall risk of the portfolio.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Zacks Investment Research