Leading broker Macquarie Group Ltd (ASX: MQG) recently affirmed its price target for Collins Foods Ltd (ASX: CKF) shares ahead of its earnings result.
In a 13 June note, the broker affirmed a 12-month price target of $8.20. At the time of writing, shares are changing hands for $7.39. That implies an 11% upside for Collins Foods shares.
What is Collins Foods?
Collins Foods is an operator of restaurants, specialising in quick service restaurants, including KFC Australia, KFC Europe, and Taco Bell.
Over the past few years, the quick service restaurant operator has struggled with a higher inflationary environment and subdued consumer spending.
In April, the company announced a strategic review and management changes. The former includes the company giving up on the Taco Bell brand in Australia. This resulted in Collins Foods exiting its Taco Bell business, sending the share price down 8% that day.
Macquarie upgrades forecasts ahead of earnings results
Collins Foods is set to release its earnings report on 24 June.
In anticipation of this event, Macquarie made some adjustments to its forecasts.
The broker said:
We have made only modest adjustments to our FY25E earnings, as we now assume zero earnings from Taco Bell into perpetuity as CKF seeks to exit the segment. Meanwhile, we are slightly below consensus on KFC SSSg given industry feedback and data suggesting ongoing pressure in the QSR channel, though see little near- term risk to margins as input prices have continued to be supportive to COGS. Following the changes, we are ~1% below consensus EPS in FY25E, and therefore see little risk leading into the result.
On the subject of valuation, the broker noted that Collins Foods is now trading at more attractive levels of around 14 times earnings. This represents a near 5-year low, according to FactSet.
However, the broker has revised its earnings per share (EPS) forecasts ~8% below consensus in FY26E and ~12% below in FY27E. Accordingly, a neutral rating has been issued on the stock.
How has Collins Foods performed over the long term?
Over the past five years, Collins Foods shares are down 11%. This is substantially behind the S&P/ASX All Ordinaries Index (ASX XJO), which has risen 44% over the same time frame.
However, Collins Foods offers a fully franked dividend yield of 3.6%.
Should Collins Foods shares reach Macquarie's $8.20 price target by the end of the year, investors could receive a total return of nearly 15% over the next 12 months, plus franking credits. That's likely to appeal to those after a mixture of capital growth and passive income.
