Wall Street Isn't Very Bullish on Bojangles

So far, not a ton of optimism

Bojangles' Raises $147.3 Million, Pricing IPO At Top Of Range

At least the food looks good

Luke Sharrett/Bloomberg

Fried chicken joint Bojangles started trading on the Nasdaq last month and firms across Wall Street are initiating coverage today. 

With the stock well above its $19 IPO price, analysts are cautious. Several firms rate the stock as a hold or neutral. With the stock currently trading at around $28 and an average price target of $28.63, there's not much upside seen over the next 12 months. 

Jefferies, William Blair and KeyBanc Capital Markets were the most bullish, all with buy ratings and price targets around $32 (Blair did not give a target in its note). 

Jefferies cited high quality quick service restaurant (QSR) positioning and lots of potential for growth in other regions as the main drivers for its bullish outlook. 

William Blair referenced Bojangles' differentiated concept of focusing on chicken and breakfast as well as potential expansion to other markets as two key drivers for its outlook. 

With a menu centered on its freshly prepared chicken n’ biscuits, Bojangles’ has garnered a loyal, cult-like following across the Southeast, as evidenced by healthy average unit volumes of nearly $1.8 million and positive same-store sales for 20 consecutive quarters. The company’s strong breakfast business accounts for 38% of sales, and as a result, Bojangles’ generates more pre-11 a.m. revenues per restaurant than any other publicly traded concept.

Blair went on to point out that the restaurant chain is popular across a number of demographics. Not only is it popular to those making less than $50,000 a year, but it's also a hot spot for those with incomes above $100,000. It was also fairly evenly split among ages and genders.

Goldman Sachs, Piper Jaffray, Barclays, and Bank of America all initiated or continued coverage with equal weight or neutral targets. Goldman had the lowest price target at $23, while Bank of America was the highest in this group at $30. The other two firms each had targets of $27. 

Although they were the most pessimistic of the bunch, Goldman still highlighted some positives for the fried chicken chain. First, Bojangles performs well against some of its main competitors.

The firm also pointed out that Bojangles does well with Millennials in terms of perceived quality and value.

In Bank of America's "Chicken 'n Biscuit Growth Story" note, the firm gives the restaurant somewhat lofty valuation metrics, but cites recent IPOs such as Shake Shack to justify them.  

Bojangles’ business model is unusual for a quick service restaurant (QSR) company with a well above-average 40% company-operated restaurant mix; a relatively high 7%-8% unit growth rate; high quality, freshly cooked food served in a quick service format; and a low-cash intense but highly leveraged new restaurant program. This unusual set of attributes makes working up a comparative set of stocks challenging. (Our) valuation metrics represent a 20% premium on EV/EBITDA and almost a 50% premium on a P/E basis to a collection of high growth and/or chicken QSR stocks (DNKN, DPZ, QSR, PLKI, and LOCO). In our view, BOJA’s track record of unit and sales growth makes its plans credible and argues for a 20% premium valuation to this comparison set. We also note that our PO implies a substantial discount valuation to other well-received restaurant IPO’s – Shake Shack, Habit Restaurants and Zoe’s Kitchen.

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