FAT Brands Stock: Market-Crushing 7%-Yielder Has 85% Upside
March 13, 2024
Why FAT Stock Has High Potential
It wasn’t all that long ago that I last wrote about FAT Brands Inc (NASDAQ:FAT), but at Income Investors, sometimes opportunity is more important than variety. I’d rather tell you about high-yield dividend stocks with great near-term and long-term growth potential than simply write about different stocks to fill some kind of quota.
FAT Brands‘ wonderful financial results and other recent developments continue to make this overlooked restaurant stock one to watch.
FAT Brands (the “FAT” stands for fresh, authentic, and tasty) is a global franchising firm that owns 18 restaurant brands, including “Fatburger,” “Hurricane Grill & Wings,” “Ponderosa,” and “Twin Peaks.” It owns about 2,300 restaurant locations worldwide. (Source: “Fat Brands Inc. Reports Fiscal Fourth Quarter and Full Fiscal Year 2023 Financial Results,” FAT Brands Inc, March 7, 2024.)
While most restaurants were running for cover during the COVID-19 pandemic, FAT Brands was expanding its empire—and it has continued to do so.
In September 2023, FAT Brands announced that it had acquired Smokey Bones Bar & Fire Grill for $30.0 million. This was the company’s first entry into the barbecue category. (Source: “FAT Brands Announces Acquisition of Smokey Bones Barbecue Chain,” FAT Brands Inc, September 25, 2023.)
In mid-February 2024, FAT Brands announced that it was strengthening its position in Canada with plans to open 40 new “Marble Slab Creamery” franchise locations throughout Canada. The deal will bolster the brand’s presence from about 100 current locations. The first new Marble Slab Creamery locations are set to open near the end of this year. (Source: “Marble Slab Creamery Strengthens Foothold in Canada with 40-Unit Development Deal,” FAT Brands Inc, February 12, 2024.)
FAT Brands Inc Has Excellent Momentum
Following a record-setting financial performance in 2022, FAT Brands had another year of milestones and high organic growth in 2023.
Last year, the company opened 125 new stores and added more than 200 stores to its now-1,200-unit development pipeline. (Source: “FAT Brands Sends Off 2023 With Another Year of Strong Organic Growth,” FAT Brands Inc, January 23, 2024.)
Also in 2023, FAT Brands brought its brands to new markets around the world.
- Fatburger returned to Chicago, Ohio and Tampa, Florida
- “Fazoli’s” returned to Orlando, Florida and Phoenix, Arizona
- “Great American Cookies” debuted in Alaska, Arizona, and Illinois
- “Johnny Rockets” got its first location in Iraq
- “Round Table Pizza” debuted in Houston, Texas
- Twin Peaks got its first locations in Chattanooga, Tennessee; Columbus, Ohio; and Jacksonville, Florida
Several of FAT Brands Inc’s newest restaurants opened in spaces that haven’t been traditional for the company, including airports, hospitals, and theme parks. Non-traditional spaces continue to be a strategic avenue for FAT Brands’ development pipeline.
Looking ahead, FAT Brands expects to open an additional 150 locations in 2024. The new development deals will bring many of its brands to new territories, including Fazoli’s, Great American Cookies, and Marble Slab Creamery to Puerto Rico—as well as Great American Cookies, “Hot Dog on a Stick,” and Marble Slab Creamery to Iraq.
FAT Brands Inc will also be bringing more restaurants to its existing strongholds like Texas, Canada, Mexico, and the Middle East, including Fatburger, Johnny Rockets, Round Table Pizza, and “Pretzelmaker” —as well as co-branded locations such as “Fatburger and Buffalo’s Express,” “Fatburger and Round Table Pizza,” and “Great American Cookies and Marble Slab Creamery.”
Strong Q4 & Full-Year 2023 Results
For the fourth quarter of fiscal 2023, FAT Brands announced that its total revenues increased by 52.8% year-over-year to $158.6 million. Meanwhile, its same-store sales slipped by 0.6% year-over-year. (Source: FAT Brands Inc, March 7, 2024, op. cit.)
In the fourth quarter of 2023, the company improved its net loss to $26.2 million, or $1.68 per diluted share, from a net loss of $70.8 million, or $4.39 per diluted share, in the fourth quarter of 2022. Management reported a fourth-quarter 2023 adjusted net loss of $17.3 million, or $1.15 per diluted share, versus a fourth-quarter 2022 adjusted net loss of $43.0 million, or $2.70 per diluted share.
Also during the fourth quarter, FAT Brands Inc opened 29 new stores.
The company’s full-year 2023 revenues climbed by 18.0% to $480.5 million, with systemwide same-store sales growth of 0.8%.
FAT Brands’ income from operations in fiscal 2023 was $22.3 million, compared to a loss from operations of $17.9 million in fiscal 2022. It reported a 2023 net loss of $90.1 million, or $5.85 per diluted share, a big improvement over its 2022 net loss of $126.2 million, or $8.06 per diluted share. The company’s 2023 adjusted net loss improved to $56.5 million, or $3.83 per diluted share.
FAT Brands Inc opened 125 new stores in full-year 2023.
Commenting on the results, Andy Wiederhorn, FAT Brands’ chairman, said, “We are seeing strong franchisee interest in development opportunities, having signed more than 225 development agreements in 2023, bringing our total pipeline to 1,100 units. This represents the potential for over 50% EBITDA growth over the next several years.” (Source: FAT Brands Inc, March 7, 2024, op. cit.)
Rob Rosen, the company’s co-CEO, added, “We believe there are significant opportunities on the horizon for FAT Brands.”
Rosen continued, “Our seasoned leadership and strong brand management platform allow us to efficiently integrate new brands while maintaining a healthy and evolving pipeline for organic growth. These strengths position us for continued growth in the future, which will help deleverage our balance sheet.”
Management Declared Q1 Dividend of $0.14 Per Share
Every segment of the restaurant industry, from fast food to fine dining, has been thriving lately, well beyond their pre-pandemic levels. That has been helping FAT Brands reward buy-and-hold investors with growing dividends.
In September 2022, the company increased its quarterly payout from $0.13 to $0.14 per share. It has maintained its quarterly payouts at that level since then. (Source: “Dividend History,” FAT Brands Inc, last accessed March 8, 2024.)
As of this writing, that works out to an annual yield of 6.75%.
In addition to its reliable, high-yield dividends, FAT Brands stock has been performing well in terms of share price. In 2023, shares of FAT Brands Inc rallied by 32.64%. More impressively, FAT stock is up by 36% so far in 2024 (as of this writing). In comparison, the S&P 500 has rallied by 7.6% over the same period.
In addition to being boosted by the company’s solid financial results, FAT Brands stock has been juiced by optimistic investors hoping that the Federal Reserve will begin cutting interest rates this year.
While most analysts had expected the first rate cut to come in April, that expectation has been pushed back to June. Still, analysts are expecting three interest rate cuts in 2024, four cuts in 2025, and three cuts in 2026. (Source: “Full Recap: Here Are Fed Chair Powell’s Market-Moving Comments as Stocks Rally on New Rate Outlook,” CNBC, December 13, 2023.)
Despite FAT stock’s big year-to-date gains, even larger gains could be on the horizon. Analysts’ median 12-month share-price target for Fat Brands is $15.00, which points to potential gains of approximately 85%.
The Lowdown on FAT Brands Inc
It was only early February that I last wrote about FAT Brands stock, and my opinion about its potential has only gotten stronger since then.
FAT Brands Inc is a terrific restaurant company that has been growing the number of its restaurant brands and the number of its restaurant locations globally. With more than 2,300 locations worldwide, the company opened 125 new stores last year and expects to open an additional 150 this year.
The additions have been helping FAT Brands report excellent revenue growth. Despite the company’s raft of recent acquisitions, management believes there are still significant opportunities on the horizon, which will allow the company to integrate new brands and maintain a healthy and evolving pipeline for organic growth.
