167%+ Upside with 10.6%-Yielding FAT Stock?
December 30, 2024
FAT Brands Inc Has Great Long-Term Growth Potential
FAT Brands Inc (NASDAQ:FAT) is a fantastic high-yielding restaurant stock that weathered the 2020 health crisis better than almost any other restaurant stock. In fact, between March 2020 and June 2021, FAT stock ripped 1,972% higher.
The company’s stock has come under pressure again recently, too, for different reasons. But Wall Street analysts think it will overcome this hurdle, setting a 12-month share price target of $15.00. At current prices, this points to potential gains in the range of 167%.
Why the optimism?
FAT Brands (the “FAT” stands for fresh, authentic, and tasty) is a global franchising firm that owns 18 restaurant brands, including “Fatburger,” “Hurricane Grill & Wings,” “Ponderosa,” “Twin Peaks,” and “Smokey Bones.” It has more than 2,300 franchise locations worldwide. (Source: “Q3 Earnings Supplement October,” FAT Brands Inc, October 30, 2024.)
While most restaurants were running for cover during the 2020 health crisis, FAT Brands was expanding its empire—and it has continued to do so.
Most recently, in September 2023, FAT Brands announced that it acquired Smokey Bones Bar & Fire Grill for $30.0 million. This was the company’s first entry into the barbecue category. (Source: “FAT Brands Announces Acquisition of Smokey Bones Barbecue Chain,” FAT Brands Inc, September 25, 2023.)
FAT Brands has since announced plans to spin off Twin Peaks and Smokey Bones as a standalone public reporting company. It has submitted all the necessary paperwork to the Securities and Exchange Commission (SEC). (Source: “FAT Brands Announces Confidential Submission of Registration Statement for Twin Peaks,” FAT Brands Inc, May 14, 2024.)
Over the last three years, FAT Brands has expanded its brand portfolio to include 18 distinct concepts. Meanwhile, its footprint has increased tenfold, now encompassing over 2,300 locations across more than 40 countries and 49 U.S. states or territories.
Strong Third-Quarter Revenue Growth
For the third quarter ended September 29, 2024, FAT Brands announced that total revenue grew 31.1% year over year to $143.4 million. System-wide sales were up 6.4%, while year-to-date same-store sales slipped 2.7%. (Source: “FAT BRANDS INC. REPORTS THIRD QUARTER 2024 FINANCIAL RESULTS,” FAT Brands Inc, October 30, 2024.)
The company reported a net loss of $44.8 million, or $2.74 per share, up from a third-quarter net loss of $24.7 million, or $1.59 per share, in 2023. On an adjusted basis, FAT Brands’ net loss improved to $38.0 million, or $2.34 per share, compared to an adjusted net loss of $171.0 million, or $1.14 per share. in the same prior-year period.
Commenting on the third-quarter results, Andrew Wiederhorn, the company’s chairman, said, “We have signed 225 development deals year-to-date versus 226 deals in all of 2023, bringing our current development pipeline to approximately 1,000 locations. This is a strong indicator of confidence within the FAT franchise system.”
Quarterly Dividend of $0.14 Per Share
The restaurant industry is performing nicely, well above the levels of the 2020 health crisis. And that has allowed FAT Brands to continue paying one of the best dividends in the restaurant industry.
In October, the company declared a quarterly dividend of $0.14 per share, or $0.56 per share on an annual basis, for a current forward yield of 10.61%. (Source: “FAT Brands Inc. Announces Fourth Quarter Cash Dividend on Class A Common Stock and Class B Common Stock,” FAT Brands Inc, July 11, 2024.)
FAT stock only restarted its dividend program in 2021, but it hasn’t missed a payout since then. In fact, FAT Brands raised its distribution in mid-2022 from $0.13 per share to $0.14 per share, holding it at that level since then. (Source: “Dividend History,” FAT Brands Inc, last accessed December 6, 2024.)
FAT Stock: 167% Upside in its Near Future?
FAT stock was doing well in 2024, hitting a 52-week high of $8.63 in early February. But the share price took a big hit in May after it was reported that FAT Brands was indicted on two violations for arranging approximately $2.65 million in loans to Wiederhorn. (Source: “Statement from FAT Brands Regarding SOX 402 Charges,” FAT Brands Inc, May 5, 2024.)
Wiederhorn, previously the chief executive officer (CEO) of FAT Brands, is the current chairman of the board. He has, of course, denied all federal charges alleging that he used $47.0 million of company money as his personal slush fund and tax evasion. (Source: “Federal prosecutors accuse Andy Wiederhorn of misusing company funds,” Restaurant Business, May 10, 2024.)
Counsel for FAT Brands responded to the charges by saying, “These charges are unprecedented, unwarranted, unsubstantiated, and unjust. They are based on conduct that ended over three years ago and ignore the Company’s cooperation with the investigation.
FAT Brands will take all necessary action to defend itself, while seeking a just resolution to these charges.”
Nothing has been reported on the matter since May. While that is a positive sign on its own, investors have spoken loudly by kicking FAT stock to an 18-month low of $4.28 per share.
FAT stock has slowly rebounded since then. Currently trading at $5.60, the stock is currently trading up approximately one percent year to date and 1.75% on an annual basis. Hardly impressive gains, but silence with regards to the issues with the SEC has buoyed investors optimism…well, that and solid financial results have.
Still, until issues with the SEC are resolved, chances are good that FAT stock will remain depressed.
With that said, once we know of any outcome, FAT Brands stock will respond in kind. Wall Street analysts are bullish on undervalued FAT stock though, with an average 12-month share price target of $15.00. That points to potential upside of 156%.
Chart courtesy of StockCharts.com
The Lowdown on FAT Stock
High-dividend-yielding FAT Brands Inc is a restaurant stock reporting strong revenue growth, is opening new stores, and has strong franchise activity. During the third quarter, it opened 22 new units, bringing its year-to-date openings to 71 new units. FAT Brands remains on track to end the year with 100 new units.
The company also announced 225 development deals year to date, versus 226 deals in all of 2023. This is, in the words of management, “a strong indicator of confidence within the FAT franchise system.”
Issues with the SEC have clouded the picture when it comes to FAT stock. But, if you step back and look at the company’s fundamentals, you’ll see that FAT Brands is continuing to do well and should stay on your radar.
