FAT Brands Stock: Undervalued 9.7%-Yielder Has 330%+ Upside
November 8, 2023
Why Investors Should Take a Look at FAT Stock
The restaurant industry took a massive hit during the COVID-19 pandemic.
Not all restaurant companies are created equal, though; some have performed better than others since 2020. The outlook for one restaurant company, FAT Brands Inc (NASDAQ:FAT), is fantastic.
An odd name for a restaurant company, but “FAT” actually stands for fresh, authentic, and tasty.
You may not have heard of FAT Brands before, but chances are you know its restaurant brands.
The company currently owns 18 of them, including “Fatburger,” “Hurricane Grill & Wings,” “Ponderosa,” “Smokey Bones,” and “Twin Peaks.” It has more than 2,300 franchise locations worldwide. (Source: “Q3 2023 Earnings Supplement,” FAT Brands Inc, October 26, 2023.)
Recent Acquisitions & Expansions
While most restaurants were running for cover during the pandemic, FAT Brands was expanding its empire.
In September 2020, the company completed its $25.0-million acquisition of Johnny Rockets, an international restaurant franchise company 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 bought Global Franchise Group for $442.5 million. Global Franchise was the name behind chains such as “Great American Cookies,” “Hot Dog on a Stick,” “Marble Slab Creamery,” and “Round Table Pizza.” (Source: “FAT Brands Completes Acquisition of Global Franchise Group,” FAT Brands Inc, July 22, 2021.)
Just a few months later, in October 2021, Fat Brands completed its $300.0-million acquisition of Twin Peaks, a chain of sports bars and restaurants with 82 locations in 25 states. (Source: “FAT Brands Inc. Completes $300 Million Acquisition of Twin Peaks Restaurant Chain,” FAT Brands Inc, October 1, 2021.)
In December 2021, Fat Brands completed its acquisition of Fazoli’s for $130.0 million. This marked Fat Brands’ first foray into the Italian quick-service dining category. (Source: “FAT Brands Inc. Completes Acquisition of Fazoli’s Restaurant Chain,” FAT Brands Inc, December 16, 2021.)
Also in December 2021, the company completed its acquisition of Native Grill & Wings for $20.0 million. (Source: “FAT Brands Inc. Completes Acquisition of Native Grill & Wings,” FAT Brands Inc, December 17, 2021.)
Fast-forward to September 2023, and FAT Brands announced that it had acquired Smokey Bones Bar & Fire Grill for $30.0 million. This was FAT Brands’ first entry into the barbecue category. (Source: “FAT Brands Announces Acquisition of Smokey Bones Barbecue Chain,” FAT Brands Inc, September 25, 2023.)
This purchase is expected to increase the company’s annual adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by approximately $10.0 million. Moreover, the deal brings 61 new corporate locations under FAT Brands’ umbrella.
“With the acquisition of Smokey Bones early in the fourth quarter, we have grown the FAT Brands portfolio to 18 iconic restaurant brands with annualized system wide sales of $2.4 billion,” said Andy Wiederhorn, FAT Brands Inc’s chairman. (Source: “FAT Brands Inc., Reports Third Quarter 2023 Financial Results,” FAT Brands Inc, October 26, 2023.)
He added, “We are seeing strong franchisee interest in development opportunities, having signed over 200 development agreements in 2023, bringing our total pipeline to over 1,100 units. This represents the potential for over 50% EBITDA growth over the next several years.”
In October, Wiederhorn said the company was “on track” to open 150 new restaurants in 2023.
FAT Brands Inc Opened 30 New Restaurants in Q3
For the fiscal third quarter, ended September 24, FAT Brands announced that its total revenues increased by six percent year-over-year to $109.4 million. Its royalty revenues increased by 4.8% year-over-year to $23.9 million. Meanwhile, its systemwide sales went up by 0.8% year-over-year. (Source: Ibid.)
The company reported a third-quarter net loss of $24.7 million, or $1.59 per share, compared to a net loss of $23.4 million, or $1.52 per share, in the same period last year. Its adjusted net loss in the third quarter of fiscal 2023 was $17.1 million, or $1.14 per share, compared to an adjusted net loss of $16.3 million, or $1.08 per share, in the same quarter of fiscal 2022.
During the third quarter, FAT Brands Inc opened 30 new restaurants.
In the first nine months of fiscal 2023, the company’s total revenues advanced 6.1% year-over-year to $321.8 million, its royalty revenues climbed by 5.8% to $69.2 million, and its systemwide same-store sales inched up by 1.3%.
In the first nine months of the fiscal year, the company opened 96 restaurants.
FAT Brands Stock Paid Q3 Dividend of $0.14/Share
Some restaurant companies’ dividends have been stagnant, but FATS Brands Inc has been rewarding investors with rising, high-yield dividends.
In September 2022, the company increased FAT stock’s quarterly payout to $0.14 per share, from $0.13 per share in June 2022. Management has held FAT Brands stock’s quarterly dividend at that level since then. (Source: “Dividend History,” FAT Brands Inc, last accessed November 2, 2023.)
As of this writing, that works out to a yield of 9.72%, which is well in excess of the current inflation rate of 3.7%.
In terms of share price, FAT stock has been performing well in 2023, up by 13% over the last six months and up by 28% year-to-date. In comparison, the S&P 500 has gone down by 0.5% over the last six months and gone up by eight percent year-to-date.
If conservative Wall Street is to be believed, bigger gains are coming. Analysts have provided a 12-month median share-price estimate of $20.00 and a high estimate of $26.00. This points to potential gains from FAT Brands stock in the range of 247% to 335%. Even the low estimate of $15.00 points to potential upside of 160%.
Chart courtesy of StockCharts.com
The Lowdown on FAT Brands Inc
FAT stock is a great restaurant stock that has rebounded by more than 750% from the depths of the pandemic.
Those big gains are justified. Since late 2020, FAT Brands Inc has closed on six strategic acquisitions. The company opened 142 new locations in 2022, and it expects to open 150 more by the end of this year.
The recent additions to its restaurant portfolio have been helping it report strong revenue growth. Management believes there are still significant opportunities on the horizon, which would allow the company to integrate new brands and maintain a healthy and evolving pipeline for organic growth.
These strengths should position FAT Brands Inc for continued financial growth, which should—in turn—help propel FAT Brands stock’s share price higher and allow management to raise its high-yield dividends.
