The Collins Foods Ltd (ASX: CKF) share price has been a strong performer on Tuesday.
In early afternoon trade the KFC and Taco Bell operator's shares are up 3% to $7.03.
Why is the Collins Foods share price climbing higher?
Investors have been fighting to get hold of the company's shares on Tuesday after it was the subject of a positive note out of one of Australia's leading brokers.
According to a note out of Morgans, its analysts have upgraded Collins Foods' shares to an add rating from hold and increased the price target on them by almost 13% to $7.78.
This price target implies potential upside of close to 11% even after today's solid gain. And if you add in the 19 cents per share dividend that the broker expects the company to pay, this potential return stretches to almost 13.5%.
Why is the broker bullish on Collins Foods?
After reviewing recent positive results from Yum! Brands and Restaurant Brands, the broker believes that Collins Foods' KFC operations are performing well domestically.
While it does have a few concerns over short term challenges in Europe, Morgans remains optimistic on its prospects in the region and notes that a return to sustainable like for like sales growth could be the trigger for an aggressive store roll out.
Should you invest?
Morgans estimates that Collins Foods will deliver earnings per share of 40 cents in FY 2019, which means that its shares are changing hands at ~17.5x forward earnings.
I think this is undemanding considering its strong long-term growth prospects from both its KFC roll out in Europe and the Taco Bell brand across several Australian states. As such, I would agree with Morgans and class its shares as a buy at this level.
In addition to Collins Foods, investors might want to take a closer look at fellow food shares Domino's Pizza Enterprises Ltd (ASX: DMP) and horticulture company Costa Group Holdings Ltd (ASX: CGC).
