Del Taco Restaurants, Inc.

TACO Details

Del Taco Restaurants, Inc. (NASDAQ: TACO) is an operator and franchisor of Del Taco quick-service Mexican American restaurants. As of September 07, 2021, the company operated 603 restaurants in the US, most of which are concentrated in the Pacific Southwest region. As of November 18, 2021, the company's market capitalization stood at USD 307.15 million.

Latest News:

• Strategic Collaboration: On October 12, 2021, TACO entered into a delivery-only partnership with REEF, a parking real estate and delivery operator in North America, to extend its reach to the Mid-City regions of Los Angeles, the first of numerous intended delivery-only locations.
• Geographic Expansion: On October 06, 2021, TACO signed an agreement with Ram Restaurants Inc., a North Carolina-based franchise group, to open five TACO units in Raleigh and Durham. Previously, on September 22, 2021, TACO announced a new multi-unit partnership with Feel Good Brands (FGB) to start three additional units on the Las Vegas strip and the nearby areas.

Q3FY21 Results:

• Flat Topline: The company reported YoY growth of 2.89% in total revenue to USD 124.27 million in Q3FY21 (ended September 07, 2021) compared to USD 120.78 million in Q3FY20 (ended September 08, 2020), attributable to a 2.25% growth in the company restaurant sales segment.
• Decline in Net Profits: Its net income reduced to USD 3.84 million during Q3FY21 vs. USD 5.80 million reported in Q3FY20.
• Cash and Debt Position: As of September 07, 2021, the company had cash & cash equivalents of USD 3.38 million and total debt of USD 105.64 million.
• Dividend Declaration: In October 2021, TACO's Board declared a quarterly dividend of USD 0.04 per common share, payable on November 24, 2021, to shareholders of record on November 03, 2021.
• Stock Repurchase Program: During the quarter, TACO repurchased 449,324 common shares for a total consideration of USD 4.4 million. At period-end, it had ~USD 10.6 million available under its repurchase authorization.

Key Risks:

• Risk Related to COVID-19 Pandemic: TACO operates in the restaurant industry, which suffered a massive hit due to the COVID-19 pandemic. Lockdowns and travel restrictions imposed to prevent its spread resulted in a dramatic drop in worldwide commercial activity. If this downward trend continues, it could adversely impact the company's financials.
• Geographic Concentration: In FY20, restaurants in Southern California represented 74% of TACO's FY20 (ended December 29, 2020) revenue. Hence, any adverse changes in this market's economic climate could affect TACO's financial performance.

Outlook:

• FY21 Guidance: In FY21, TACO expects to incur capital expenditures of about USD 30 million, and its general & administrative expenses are estimated to be 9.0% of total revenue. It also plans to add four company-operated and nine franchised restaurants during the year.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

TACO Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

TACO's share price has declined 19.22% in the past six months and is currently leaning towards the lower-band of the 52-week range of USD 8.09 to USD 11.99. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 41.31. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 10.21.

Considering the significant correction in the stock price in the past six months, inorganic growth initiatives, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 8.32, down 1.42% as of November 18, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.   

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