FAT Brands Stock: 6.5%-Yielding Restaurant Stock Has 228% Upside
FAT Stock’s Outlook Bullish on Acquisitions & Financial Growth
The hospitality industry took a beating during the COVID-19 pandemic. The food and beverage industry, which is the largest sector within the hospitality industry, took the biggest hit. With the economy now wide open, the restaurant industry is back.
Some restaurant company stocks are more interesting than others. One of the most compelling ones is FAT Brands Inc (NASDAQ:FAT).
And no, the “FAT” in the company’s name isn’t meant to be negative; it 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,” “Hurricane Grill & Wings,” “Ponderosa,” and “Yalla Mediterranean.” It has more than 2,300 franchise locations worldwide.
While most restaurants were running for cover during the pandemic, FAT Brands was expanding its empire.
In September 2020, during the heart of the pandemic, Fat Brands 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,” “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.)
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 acquisitions of Fazoli’s for $130.0 million and Native Grill & Wings for $20.0 million. The acquisition of Fazoli’s 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.)
2022 a Period of Historic Growth for FAT Brands Inc
Fat Brands didn’t make any major acquisitions in 2022, but it was still a year of historic business growth for the company. Last year, it opened 142 new locations, including 44 in the fourth quarter.
Leading the way in new locations in 2022 was “Fatburger and Buffalo’s Express,” with 86; Fazoli’s, with 61; Round Table Pizza, with 56; and Twin Peaks, with 50. (Source: “FAT Brands Accelerates Organic Growth in 2022 With 362 Stores Added to Development Pipeline,” Fat Brands Inc, February 6, 2023.)
The company’s deals in 2022 included a development agreement for 40 Fatburger and Buffalo’s Express locations and 40 Round Table Pizza locations in Texas; an agreement for 32 Twin Peaks locations in Mexico; and an agreement for 10 Johnny Rockets locations in Israel.
Other strategic deals included 10 Marble Slab Creamery locations in Egypt and a nine-location development deal for Fazoli’s in Phoenix, Arizona. The company’s record-breaking development activity will bring its portfolio of iconic restaurants to areas such as Atlanta, Chicago, Dallas, Florida, Louisiana, and Puerto Rico.
Fat Brands Inc has been seeing a significant amount of new-franchise activity and continued demand from existing franchise partners to develop other brands. FAT Brands currently has a development pipeline of more than 1,000 locations, representing a 60% increase in earnings before interest, taxes, depreciation, and amortization (EBITDA) over the next several years.
Management estimates that the company will open 150 to 175 restaurant locations in 2023.
Outstanding Q4 & Full-Year 2022 Results
For the fourth quarter of fiscal 2022 (ended December 25), FAT Brands announced that its revenue jumped by 39.9% to $103.8 million. The company’s systemwide sales grew in the quarter by 22.1%. (Source: “Fat Brands Inc. Reports Fourth Quarter and Full Year 2022 Financial Results,” FAT Brands Inc, February 22, 2023.)
The big revenue increase was a result of the company’s acquisition of Twin Peaks in October 2021, its acquisitions of Fazoli’s and Native Grill & Wings in December 2021, and the continuing recovery of royalties from restaurant sales since the COVID-19 pandemic. As noted above, during the fourth quarter, FAT Brands Inc opened 44 new restaurant locations.
The company reported a fourth-quarter 2022 net loss of $70.8 million, or $4.29 per diluted share, compared to a fourth-quarter 2021 net loss of $19.6 million, or $1.38 per diluted share. It reported a fourth-quarter adjusted net loss of $43.0 million, or $2.60 per diluted share, compared to $16.5 million, or $1.16 per diluted share, in the fourth quarter of 2021.
The company’s adjusted EBITDA in the fourth quarter of 2022 was $19.6 million, up by 88% from the $10.4 million it reported for the fourth quarter of 2021.
Andy Wiederhorn, FAT Brands Inc’s president and CEO, commented, “The fourth quarter marked yet another strong performance for FAT Brands, as evidenced by our robust [restaurant] 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 during 2022.” (Source: Ibid.)
For the full fiscal year, FAT Brands’ revenue increased by 242.5% to $407.2 million. Its systemwide sales grew by 108.0% during the year. Over the course of fiscal 2022, the company opened more than 140 new stores.
FAT Brands Inc reported a full-year net loss of $126.2 million, or $7.66 per diluted share, compared to $31.6 million, or $2.15 per diluted share, in 2021. The company’s fiscal 2022 adjusted net loss came in at $80.9 million, or $4.91 per diluted share, compared to $20.6 million, or $1.41 per diluted share, in fiscal 2021. FAT Brands reported adjusted EBITDA of $88.8 million for 2022, compared to $21.1 million for 2021.
FAT Brands Stock’s Quarterly Dividend Boosted to $0.14/Share
FAT Brands Inc has been rewarding its shareholders with growing, high-yield dividends.
In January, management declared a first-quarter 2023 dividend of $0.14 per share. This represents a 7.6% increase over the $0.13 per share FAT stock paid out in the first quarter of 2022.
Although FAT Brands raised its dividend in 2022 and is likely to do so again in 2023, it’s not necessarily a sure thing. FAT Brands Inc didn’t pay dividends during the pandemic, but it resumed its payouts in May 2021 at $0.13 per share, up from $0.12 per share before the pandemic.
In addition to its rising dividends, FAT Brands stock has been doing exceptionally well in terms of share price. In fact, it has been trouncing the broader market. As of this writing, FAT stock is up by:
- 29% over the last three months
- 55% year-to-date
- 8.5% year-over-year
Meanwhile, the S&P 500 is:
- Down by one percent over the last three months
- Up by 0.4% year-to-date
- Down by 9.5% year-over-year
If Wall Street analysts are to be believed, bigger gains from FAT brands stock are coming. Analysts’ average 12-month share-price target for the stock is $25.00, which points to potential gains of 228%.
Chart courtesy of StockCharts.com
The Lowdown on FAT Brands Inc
FAT stock has risen by nearly 1,000% since the depths of the pandemic. That increase was justified.
Since late 2020, FAT Brands Inc has closed on five strategic acquisitions. As mentioned earlier, the company opened 142 new restaurant locations in 2022, bringing its global franchise base to 2,300. The additional restaurants have been contributing to high revenue growth and allowing the company to provide impressive guidance. It expects to open at least 150 more locations in 2023.
All this has been helping FAT Brands stock’s share price go higher and allowing management to raise the stock’s inflation-crushing dividends.