FAT Brands Stock: 6.5%-Yielding Restaurant Stock Bullish on Acquisitions
September 22, 2022
FAT Brands Inc Makes 5 Blockbuster Acquisitions
Restaurant stocks took a beating during the COVID-19 pandemic, and while the industry has certainly rebounded, it’s not out of the woods. That said, some restaurant stocks have been doing exceptionally well and are poised to rip higher. One of the most interesting restaurant stocks is the often-overlooked FAT Brands Inc (NASDAQ:FAT). Before anyone gets offended, “FAT” stands for fresh, authentic, and tasty.
FAT Brands is a leading global franchising company that acquires, develops, and markets quick-service, fast-casual, and casual dining restaurants around the world. The company currently owns 17 restaurant brands, including “Fatburger, “Ponderosa,” and “Yalla Mediterranean.”
While 2020–2021 was a period of austerity and reinvention for many restaurant companies, it was a period of spectacular growth for FAT Brands Inc.
In September 2020, during the pandemic, the company completed the $25.0-million acquisition of “Johnny Rockets,” an international restaurant franchise with 325 locations in more than 25 countries. (Source: “FAT Brands Completes Acquisition of Johnny Rockets, Increases Securitization Facility to $80 Million,” FAT Brands Inc, September 22, 2020.)
In July 2021, Fat Brands agreed to buy Global Franchise Group for $442.5 million. This acquisition added five quick-service restaurants to Fat Brands’ portfolio: “Great American Cookies,” “Hot Dog on a Stick,” “Marble Slab Creamery,” “Pretzelmaker,” and “Round Table Pizza.” (Source: “FAT Brands Inc. Agrees to Acquire Global Franchise Group for $442.5 million,” FAT Brands Inc, June 28, 2021.)
In October 2021, Fat Brands completed the $300.0-million acquisition of the “Twin Peaks” chain of sports bars and restaurants, with 82 locations in 25 states at the time. The addition of Twin Peaks, including new locations due to open and under development, is expected to increase Fat Brands’ post-COVID-19 normalized earnings before interest, taxes, depreciation, and amortization (EBITDA) by approximately $25.0 to $30.0 million. (Source: “FAT Brands Inc. Completes $300 Million Acquisition of Twin Peaks Restaurant Chain,” FAT Brands Inc, October 1, 2022.)
In December 2021, Fat Brands completed its acquisitions of “Fazoli’s” and “Native Grill & Wings.” The $130.0-million acquisition of Fazoli’s marks the company’s first foray into the Italian quick-service dining category. The $20.0-million acquisition of Native Grill & Wings will further increase FAT Brands’ market share in the chicken wing category. (Sources: “FAT Brands Inc. Completes Acquisition of Fazoli’s Restaurant Chain,” FAT Brands, Inc, December 16, 2021 and “FAT Brands Inc. Completes Acquisition of Native Grill & Wings,” FAT Brands Inc, December 17, 2021.)
As of the end of July, FAT Brands had more than 2,350 restaurants around the world, with combined annual sales of approximately $2.2 billion. Year-to-date, FAT Brands has opened 62 restaurants, including 26 in the second quarter. The company is on track to open 120 new restaurants in 2022, which represents year-over-year growth of five percent. (Source: “ FAT Brands Inc. Reports Second Quarter 2022 Financial Results,” FAT Brands Inc, July 28, 2022.)
Great Second-Quarter Results
For the second quarter ended June 26, FAT Brands announced that its revenue jumped by 1,141% year-over-year from $8.3 to $102.8 million. The massive increase was a result of new revenue from the acquisitions of Fazoli’s, Global Franchise Group, Native Grill & Wings, and Twin Peaks. Of that total, the company reported systemwide sales growth of 284% and systemwide same-store sales growth of 5.6%. (Source: Ibid.)
The company reported a second-quarter net loss of $8.2 million, or $0.50 per share, compared to a net loss of $5.9 million, or $0.48 per share, in the second quarter of 2021. Its adjusted EBITDA in the second quarter of 2022 was $29.5 million, compared to $2.1 million in the same period of last year.
Andy Wiederhorn, FAT Brands Inc’s president and CEO, commented, “The second quarter marked yet another strong performance for FAT Brands, characterized by robust unit development and profitable revenue growth. After a very active acquisition strategy in 2021, I am particularly pleased with the momentum of our organic growth strategy for the first half of this year.” (Source: Ibid.)
He later said, “As we have stated, 2022 is a year to digest the acquisitions of 2021 and capitalize on the potential synergies they present. That being said, our acquisition strategy is one of the core pillars of FAT Brands, and we will continue to evaluate and capitalize on potential candidates as we see fit.”
FAT Stock’s Quarterly Dividend Hiked to $0.14/Share
Economic challenges might be undermining the broader restaurant industry, but FAT Brands stock continues to reward investors with growing, ultra-high-yield dividends. In July, FAT Brands Inc announced a quarterly dividend of $0.14 per share, up from $0.13 per share in the previous quarter, for a yield of 6.6%.
FAT Brands didn’t pay dividends during part of the pandemic, but it resumed the payouts in May 2021 at $0.13 per share, up from $0.12 per share before the company stopped paying dividends.
The good news doesn’t stop with FAT stock’s rising dividends. Thanks to outstanding first-quarter and second-quarter financial results, FAT Brands Inc’s share price has risen by about 50% since the start of May.
While FAT Brands stock is down by 10.5% year-over-year, it’s still up by more than 1,000% since the depths of the pandemic. The big gains might not be done yet. Analysts’ average 12-month share-price target for FAT stock is $25.00, which points to potential gains of 195%.
Chart courtesy of StockCharts.com
The Lowdown on FAT Brands Stock
FAT Brands stock was derailed by the COVID-19 pandemic, but it has come tearing back.
Since late 2020, FAT Brands Inc has closed on five strategic acquisitions, boosting the number of its restaurants to more than 2,350, with combined annual sales of about $2.2 billion. It sounds like the company is considering other acquisitions, too. All of this has been juicing FAT stock’s share price and allowing the company to raise its ultra-high-yield dividends.
