UBS upgrades Guzman y Gomez with fast food chain likely to beat market expectations

A prominent analyst has painted a bright outlook for Guzman y Gomez, sending shares in the Mexican-themed restaurant chain higher on Wednesday.

UBS analyst Shaun Cousins upgraded Guzman from sell to neutral and lifted his 12-month price target from $37 to $40, saying the company will likely beat market expectations for annual sales growth and earnings margin.

“Given the prospect of further earnings upgrades and increased discounted cash flow valuation support due to higher earnings, the risk reward is more balanced,” he said in a note.

Key drivers of Guzman’s sales growth included menu innovations, longer opening hours and increased delivery orders.

“Drawing on the performance of high growth quick service restaurant peers, reported same-store-sales growth has averaged 1.8 per cent above market estimates at the start of each financial year since (the 2017 financial year),” Mr Cousins said.

UBS remains “confident in the long-term potential for net new store growth”, with 15 opened in the first half compared with the 31 guided for the 2025 financial year.

Guzman aspires to have 1000 outlets in Australia in the next 20 years.

Today, it operates more than 220 outlets across Australia, Singapore, Japan, and the US, and in a variety of formats: at universities, in food courts and drive-throughs.

Guzman listed on the Australian Securities Exchange last June at $22 a share. On Wednesday, the stock closed up 4.4 per cent to $40.