Carrols: Zacks’ Bull of the Day Play

Carrols Restaurant Group, Inc. (TASTSnapshot Report) continues to see hot sales as Burger King’s marketing builds momentum. This Zacks Rank #1 (Strong Buy) is expected to see double digit earnings growth this year and next.

Carrols is the largest Burger King franchisee in the United States with 717 restaurants, as of the beginning of Apr 3, 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.

Another Big Beat in the First Quarter

On May 10, Carrols reported its first quarter results and blew by the Zacks Consensus for the second quarter in a row.

Earnings were $0.05 compared to the Zacks Consensus which was looking for a loss of $0.08. That’s a 13 cent beat. That’s coming on the heals of last quarter’s big 15 cent beat.

Total restaurant sales rose 15.2% to $222.5 million from $193.2 million in the year ago quarter, but that included $53.4 million in sales from an extra 190 Burger Kings acquired from 2014 to 2016.

Comparable restaurant sales jumped 5.7% compared to an 8.4% increase in the first quarter of last year. That was a strong comp so it’s impressive that it was able to lap it.

Burger King’s promotions are working to boost sales, additionally lower beef costs helped increase overall profitability.

Raised Full Year Guidance

Carrols is still optimistic about the rest of the year. It moderately raised full year sales guidance to a range of $935 million to $960 million from previous guidance of $930 million to $955 million.

It kept its comparable restaurant sales guidance unchanged at 2% to 4%.

Commodity costs are now expected to decrease from 0% to 2%, previously the company had looked for a 1% decrease to a 1% increase. New guidance includes a 5% to 10% decrease in beef costs.

Zacks Consensus Estimates Rise

The analysts liked what they heard as they’ve been raising estimates since the report.

2 estimates were raised for 2016, pushing the Zacks Consensus up to $0.58 from $0.53. That’s growth of 54% as Carrols only made $0.38 last year.

1 estimate was also raised for 2017. Analysts are looking for $0.70 a share, which translates into further earnings growth of 19.6%.

Shares Near 2-Year Highs

Shares have been on quite a run over the last 2 years but look like they might be taking a bit of a break here.

While expensive, with a forward P/E of 22.6, that’s still under what some peers are trading at such as McDonald’s (MCDAnalyst Report) at 23.2x.

Investors are paying for the growth, which is still stellar.

For those investors looking to cash in on low gasoline prices and consumers desires to eat out more, 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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