Carrols: Zacks’ Bull of the Day Play

Carrols Restaurant Group, Inc. (TASTSnapshot Report) is cashing in on low gasoline prices and demand for burgers. This Zacks Rank #1 (Strong Buy) put up a monster beat in the fourth quarter of 2015.

Carrols is the largest Burger King franchisee in the United States with 717 restaurants, as of the beginning of March 2016, and has operated Burger King restaurants since 1976.

Most of its restaurants are located in the Northeast, the Ohio Valley and the Mid-Atlantic states.

500% Beat in the Fourth Quarter

On March 3, Carrols reported its fourth quarter 2015 results and blew by the Zacks Consensus by 15 cents. Earnings were $0.18 compared to the consensus of $0.03.

Comparable restaurant sales jumped 5.1% year over year after increasing 3.6% in the year ago quarter.

For the year, comparable store sales rose 7.4% year over year compared to just 0.6% in 2014.

Carrols attributed the increase in sales to better Burger King marketing initiatives as well as new products such as chicken fries which were supposed to be a one-time product but were so successful they have been put on the permanent menu.

The company also continues to remodel its restaurants, completing the remodeling of 94 in 2015. By the end of 2015, more than 60% had the new updated 20/20 design image.

Bullish Outlook for 2016

Carrols sees continued growth in 2016 with comparable sales expected to rise between another 2% and 4% in 2016.

Commodity costs are forecast to fall 1% or rise about 1% in 2016, including a 5% to 10% decrease in beef costs.

It intends to pursue the acquisitions of additional Burger King restaurants in 2016, but the annual guidance does not include any impacts from those acquisitions.

Analysts are also bullish, with 2 estimates being increased for 2016 in the last 30 days. The Zacks Consensus Estimate has jumped to $0.53 from $0.45 in that time.

That is earnings growth of 39.5%.

They are also bullish on 2017 with another 29.3% earnings growth expected.

Shares Near 2-Year High

The shares have had strong momentum over the last year as the Burger King story turned positive. They are trading near a 2-year high.

Carrols isn’t cheap. It’s forward P/E is 25.4.

But for investors looking for a double digit growth play in the restaurant group with momentum, then Carrols is one to keep on the short list.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec and she also hosts the Zacks Market Edge Podcast on iTunes.

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