Another broker puts a buy recommendation on Guzman y Gomez shares

Guzman y Gomez Ltd (ASX: GYG) shares have been attracting plenty of broker attention over the past week. 

The fast food chain’s share price has slowly declined over the last 12 months, with international performance has dragging down sentiment despite positive domestic results. 

Last Friday, the company released its half-year result.

This included:

• Global network sales of $681.8 million, an increase of 18% on the prior corresponding period
• Revenue rose 23% to $261.2 million
• Underlying EBITDA increased 23.3% to $33 million
• Statutory net profit after tax (NPAT) of $10.6 million, up 44.9% from $7.3 million a year earlier.
• Underlying EBITDA for Australia increased 30% to $41.3 million
• An interim dividend per share of 7.4 cents. 

This sent investors running for the hills as Guzman y Gomez shares crashed 10% on Friday. 

During Friday’s trade, Guzman y Gomez shares hit an all-time low. 

Brokers quick to see upside

Following the company’s earnings results, experts were quick to point out the potential upside for Guzman y Gomez shares. 

In a note out of Macquarie, the broker reiterated its outperform rating, but trimmed its price target to $27.30. 

Yesterday, UBS also provided a positive outlook for the company. 

The broker has a price target of $21 on Guzman y Gomez shares. 

These targets indicate between 10% and 44% upside.

A consistent theme from analysts has been the conflicting success of the company in Australia compared to overseas.

Here in Australia, Guzman y Gomez is performing well, while results in the United States are lagging behind. 

That being said, the US quick service restaurant (QSR) market is the largest globally and therefore attractive, though execution risk is high.

Investors seemed to agree it was oversold last week, as Guzman y Gomez shares recovered more than 8% on Monday. 

It closed trading yesterday at $19.04. 

Morgans joins the party 

The team at Morgans have also weighed in on the future of the Mexican restaurant chain. 

Over the weekend, the broker said here in Australia, Guzman y Gomez continues to outperform the broader QSR industry both in terms of comp sales and network expansion. 

But it’s not just about Australia. GYG came to market with a strategy for global expansion that was breathtakingly ambitious. The first big opportunity was the US. Unfortunately, the pace of network expansion in the US so far has been pedestrian and the restaurants it has opened have lost more money than expected. 

It was a further step-up in US losses that disappointed investors most today and caused group EBITDA to fall 7% short of our forecast. We do believe global growth will click into gear at some point to complement a very healthy Australian business.

The broker has retained its buy recommendation on Guzman y Gomez shares, but trimmed its price target to $24.00. 

From yesterday’s closing price, that indicates an upside of 26%. 

GYG has a bit to prove, but we can be certain it is going to give it all it’s got to ultimately realise its growth ambitions.

The post Another broker puts a buy recommendation on Guzman y Gomez shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Bell has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.