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Tuesday, Benchmark analyst Todd Brooks maintained a Hold rating on El Pollo Loco shares (NASDAQ:LOCO), currently trading at $10.28, following news of potential acquisition interest from Biglari Capital. According to InvestingPro data, the stock appears undervalued based on its Fair Value analysis, with shares down nearly 31% over the past six months. After the market closed, the company disclosed that Biglari Capital, which already owns a portion of LOCO, expressed an unsolicited, non-binding interest in purchasing the remaining 85% of the company's shares it does not yet control. With a current market capitalization of $306 million and a P/E ratio of 11.9x, the company's valuation metrics suggest an interesting opportunity. InvestingPro subscribers can access comprehensive acquisition analysis tools and 8 additional ProTips to evaluate this potential deal.
El Pollo Loco's Board of Directors is currently conducting a fiduciary review of the proposal. In conjunction with this, the company has entered into a confidentiality agreement with Biglari Capital as of April 6th. This agreement includes a standstill clause that prevents Biglari from increasing its share ownership until 30 days before the nomination of Board members for the 2026 Annual Meeting.
Biglari Capital has recently increased its stake in El Pollo Loco, as reported in a 13-D/A filing, bringing its total ownership to 15.1%. This increment positions Biglari as an "acquiring person" under the terms of the poison pill strategy that El Pollo Loco amended in August 2024.
It is crucial to note, as per the analyst's commentary, that the expression of interest from Biglari Capital does not guarantee that a formal bid will be made or that any transaction will be finalized. The current situation is one of consideration and review, with no certainty of a change in ownership as of yet.
In other recent news, El Pollo Loco has reported its fourth-quarter 2024 earnings, surpassing analyst expectations with an earnings per share of $0.20 compared to the forecast of $0.14. The company's revenue also exceeded projections, reaching $114.3 million against the expected $113.24 million. Additionally, El Pollo Loco received an unsolicited indication of interest from Biglari Capital to acquire the company's outstanding shares. This proposal is currently under evaluation by El Pollo Loco's board with the assistance of financial and legal advisors, although no timeline has been set for a decision.
In another development, Craig-Hallum initiated coverage on El Pollo Loco with a Buy rating and set a price target of $18.00. The firm noted the company's margin expansion as a key driver for potential returns. El Pollo Loco's strategic focus on improving its business model has resulted in higher restaurant margins and average unit volumes, positioning the company for a growth phase. The company also plans to open 10 new restaurants in 2025, indicating a focus on expansion. These recent developments reflect a period of significant activity and potential growth for El Pollo Loco.
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