Why the Collins Foods (ASX:CKF) share price is surging higher today

The underperforming Collins Foods Ltd (ASX: CKF) share price could soon play catch up after a leading broker upgraded the…

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Collins Foods share price pieces of fried chicken

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The underperforming Collins Foods Ltd (ASX: CKF) share price could soon play catch up after a leading broker upgraded the stock to “buy”.

Shares in the KFC franchisee surged 4.8% to $12.17 in morning trade when the S&P/ASX 200 Index (Index:^AXJO) fell 0.5%.

But even with today’s gain, the Collins Foods share price is still only up a modest 13% over the past year.

In contrast, the Domino’s Pizza Enterprises Ltd. (ASX: DMP) share price nearly doubled and the ASX 200 rallied 24% over the period.

Broker upgrade gives Collins Foods share price a boost

But the analysts at Macquarie Group Ltd (ASX: MQG) is urging investors to put the Collins Foods share price back on the menu.

The broker upgraded its recommendation on the Collins Foods share price to “outperform” with a target price of $12.50 a share.

Industry feedback and data sourced from other parties suggest that KFC is winning market share in the quick service restaurant (QSR) space, noted Macquarie.

Playing chicken with pizza

“Growth of chicken category is now ahead of pizza, which has seen momentum slow in recent months,” said Macquarie.

“Online traffic winners include chicken retailers – KFC (+7%), Nando’s (+16%), Red Rooster (+21%) – GYG (+112%) and Taco Bell (+58%).

“Both Domino’s Pizza & McDonalds have since traffic decline over this period and have lost market share.”

Other reasons to be bullish on the Collins Foods share price

But there are three other reasons behind Macquarie’s upgrade of the Collins Foods share price.

It pointed to a recovery in the QSR market with total online traffic increasing 3.4% since the start of the calendar year. It’s still down 2% from pre-pandemic levels, but Macquarie reckons the worst is over and single-digit gains are likely to persist.

Further, the surge in popularity of food aggregators like Menulog, owned by Just Eat Takeaway.com NV – ADR (NASDAQ: GRUB), bode well for Collins Foods. Traffic for these aggregators have jumped by 56% since January this year.

“We note that Menulog now has ~2x the online traffic of Domino’s Pizza,” said Macquarie.

“CKF is well placed to benefit from this trend. Its digital offering is available across ~80% of its network via Deliveroo, Menulog, and DoorDash.”

Big app-etite

Fourthly, the KFC mobile app has been the second most downloaded app since the start of the pandemic. It’s averaging 120,000 downloads a month.

The KFC app is also the second-most actively used QSR app in Australia behind McDonald’s Corp (NYSE: MCD).

Macquarie noted that the KFC app has a penetration rate of around 14% – more than twice the industry average.

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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended Collins Foods Limited and Dominos Pizza Enterprises Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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