Maxim: Habit Restaurants No Longer A Buy, Consider Del Taco Instead

Shares of Habit Restaurants Inc HABT are up nearly 70 percent over the last three months, putting an end to Maxim Group's bullish stance on the casual fast food stock. 

The Analyst

Maxim's Stephen Anderson downgraded Habit Restaurants from Buy to Hold with an unchanged $15 price target.

The Thesis

Habit Restaurants reported a strong second quarter, which confirms the company's recent momentum remains strong, Anderson said in the downgrade note.

The company plans to open new stores across multiple regions in both the U.S. and internationally, which will support a mid-teen revenue growth trajectory over the coming years, the analyst said. Habit is also expected to post comp growth of at least 1-2 percent in the back half of 2019 and a slightly higher rate in the first half of 2019.

Thursday's 22-percent surge in the stock implies that shares are trading at 89.3 times Maxim Group's 2019 earnings per share estimate of 17 cents and 10.6 times forward EV/EBITDA, Anderson said. This represents a significant premium to its post-IPO average ratios of 61 times and 9.1 times, respectively. The stock now factors in expectations for continued momentum in 2019, the analyst said. 

Investors may want to consider Del Taco Restaurants Inc TACO in the small-cap restaurant space, Anderson said. Shares of Del Taco trade at 17.8 times forward P/E, which is a discount to its 22.7 times average since 2015 and a discount to the 25 times average for the broader quick service restaurant group.

Price Action

Habit Restaurants shares were trading down 3.14 percent to $14.68 at the time of publication Friday. 

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Photo courtesy of Habit Restaurants.