First Watch Restaurant Group: Analyst Sees Strong Growth Potential, Initiates Coverage with Overweight Rating
First Watch Restaurant Group (FWRG) is catching the eye of analysts, with Stephens & Co. analyst Jim Salera initiating coverage on the company with an Overweight rating and a price target of $20. This optimistic outlook is fueled by Salera’s belief in First Watch’s strong position within the daytime dining market, particularly in the breakfast, brunch, and lunch segments.
Salera underscores First Watch’s commitment to fresh ingredients and chef-driven menus, highlighting the appeal of its trendy and seasonal dishes that cater to both health-conscious diners and those seeking a modern, upscale breakfast experience. This approach has clearly resonated with customers, driving consistent growth for the company.
Looking ahead, Salera forecasts annual revenue growth in the low double digits. This growth is expected to be driven by a combination of unit expansion, with over 10% unit growth projected, and positive same-store sales performance. He emphasizes that First Watch has a clear path to achieve its target of over 2,200 domestic units, with two analysis scenarios indicating potential upside to 2,475 and 2,398 units, respectively. This projected expansion signifies a significant growth trajectory that outpaces the low single-digit growth anticipated for the casual dining industry as a whole.
In terms of financial projections, Salera estimates FY24 adjusted EBITDA to reach $108.9 million and adjusted EPS to be $0.30, slightly below current consensus estimates of $110.9 million and $0.32, respectively. For FY25, he forecasts adjusted EPS of $0.43 and adjusted EBITDA of $129.0 million, surpassing the Street’s expectations of $0.42 EPS and $126.4 million EBITDA.
While Salera is bullish on First Watch’s long-term prospects, he acknowledges that the current macroeconomic environment could pose near-term challenges. A challenging consumer environment may impact revenue, potentially resulting in same-store sales hitting the lower end of long-term expectations. Additionally, the recent Hurricane Milton could present further challenges for the company.
Despite these potential headwinds, Salera’s Overweight rating and $20 price target highlight the strong growth potential he sees in First Watch. As the company continues to expand its footprint and cater to a growing demand for fresh, quality dining experiences, investors will be watching closely to see how First Watch navigates these challenges and capitalizes on its growth opportunities.
