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On Wednesday, Raymond (NSE:RYMD) James made adjustments to its outlook on First Watch (NASDAQ:FWRG) by reducing the price target from $25.00 to $21.00. Despite this change, the firm continues to endorse a Strong Buy rating for the restaurant chain’s shares. According to InvestingPro data, the stock is currently trading at $15.33, having declined over 13% in the past week alone. With analyst targets ranging from $18 to $28, the stock shows potential upside despite recent pressures.
The adjustment by Raymond James follows First Watch’s first-quarter results, which included a downward revision of the company’s 2025 adjusted EBITDA guidance by approximately 8%. The company’s current EBITDA stands at $95.11 million, with revenue growing at 14.43% year-over-year. Analysts at Raymond James have expressed that the approximately 18% drop in First Watch’s stock price seems excessive in light of these results.
In their commentary, Raymond James analysts highlighted several positive developments for First Watch, including a return to positive traffic, attributed to new marketing strategies, investments in improving the guest experience through better food portions and surprise elements, as well as a significant rebound in its third-party delivery service.
The firm acknowledges that these initiatives are likely to put pressure on the company’s near-term margins due to high supply chain food inflation and additional tariff pressures of 30 basis points. However, analysts believe that these investments are crucial for enhancing customer experience and fostering loyalty without resorting to detrimental discounting or price promotions.
Raymond James also notes First Watch’s strong operational position, with store margins expected to remain at the forefront among full-service restaurant peers, even after accounting for the new investments. This perspective suggests confidence in the company’s ability to manage costs while pursuing growth and customer retention strategies. InvestingPro analysis reveals several key factors affecting the company’s outlook, including a significant debt burden and short-term liquidity challenges. For a comprehensive understanding of First Watch’s financial position and growth prospects, including 10+ additional ProTips and detailed metrics, explore the full Pro Research Report available on InvestingPro.
In other recent news, First Watch Restaurant Group (LON:RTN) Inc. reported its first-quarter 2025 earnings, revealing a net loss of $829,000 and a revenue increase of 16.4% year-over-year to $282.2 million. However, the earnings per share (EPS) fell short of expectations, coming in at -$0.01 compared to the forecasted $0.04. Despite the revenue growth, the earnings miss led to concerns among investors. The company plans to open 59-64 new restaurants in 2025, indicating a focus on expansion. Analysts noted the company’s challenges with declining restaurant traffic and reduced operating profit margins. Adjusted EBITDA was reported at $22.8 million, with a projection for the full year between $114 million and $119 million. First Watch’s management remains optimistic about future growth, despite facing macroeconomic challenges and commodity inflation pressures.
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