On Friday, Piper Sandler confirmed its positive stance on First Watch Restaurant Group (LON:RTN), Inc. (NASDAQ:FWRG) stock, maintaining an Overweight rating with a $23.00 price target. The recommendation follows a year where the company experienced a 7% decline in share value due to traffic falling short of expectations. Despite this downturn, the firm views the stock's valuation favorably in light of its ongoing growth prospects.
InvestingPro data shows the company has achieved impressive revenue growth of 19.77% over the last twelve months, with shares currently trading at $19.38.
According to Piper Sandler, First Watch is currently trading below 10 times the firm's projected 2026 adjusted EBITDA, which suggests the shares might be undervalued. The analyst pointed to the unit growth story at First Watch as still being robust and a key factor in the investment thesis. The current price target implies an approximate 18% upside from the stock's recent trading levels.
Based on InvestingPro's Fair Value analysis, the stock appears to be overvalued at current levels, though analyst targets range from $18 to $27. Get access to 10 additional exclusive ProTips and comprehensive valuation metrics with an InvestingPro subscription.
The firm's optimism is partly based on positive signals from the company's dining room traffic, as discussed in the November earnings call. If this momentum continues into 2025, it is believed that it could act as a catalyst for the stock's recovery.
Piper Sandler's analysis indicates that First Watch's stock could be poised for a rebound if it maintains its current trajectory. The Overweight rating signifies the analyst's confidence in the company's potential for above-average returns compared to the broader market.
First Watch's future performance will likely be closely watched by investors, especially those interested in the full-service restaurant sector. The company's ability to sustain and build upon its unit growth while improving customer traffic will be critical in achieving the anticipated upside.
In other recent news, First Watch Restaurant Group announced a secondary stock offering of 8 million shares at $19.95 per share, managed by Advent International. The underwriter, Goldman Sachs (NYSE:GS) & Co. LLC, retains the option to purchase an additional 1.2 million shares within 30 days.
The company also disclosed its third quarter 2024 financial results, reporting system-wide sales of $291.8 million and total revenues of $251.6 million, a 14.8% increase from the previous year. Despite a 4.4% dip in same-restaurant traffic, the addition of 44 new restaurants contributed to this growth.
Piper Sandler showed confidence in First Watch by increasing the price target to $23.00 from $22.00, maintaining an Overweight rating for the stock. The firm anticipates that traffic trends will likely continue to be negative in the fourth quarter of 2024.
On the expansion front, First Watch plans to open 23 new locations in the fourth quarter and has adjusted its 2024 earnings guidance, raising the lower end of the forecast range. These recent developments highlight the company's strategic moves amid a challenging market landscape.
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