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Potbelly Corporation (PBPB - Free Report) appears to be turning the corner. This Zacks Rank #1 (Strong Buy) is expected to see earnings growth in 2017 and 2018.
Potbelly's operates over 440 company-owned and franchised sandwich restaurants in the US, the Middle East, the UK and Canada. It offers warm sandwiches, signature salads and soups and shakes.
Some of the locations even offer live music, courtesy of local musicians.
Big Beat in the Fourth Quarter
Investors have been worried about the restaurant chains as costs have risen, especially for labor.
But those concerns didn't seem to phase Potbelly as it reported much better than expected earnings in the fourth quarter. Earnings came in at $0.15 versus the $0.07 estimate, for a 114% beat.
Total revenue in the quarter rose 7.6% to $102.4 million from $95.1 million a year ago.
It opened 28 new restaurants, including 25 company-operated shops and 3 franchised shops.
Company owned comparable store sales, which make up over 400 of the total stores, rose 0.1%.
For the full year, comparable store sales increased 1.4%. After seeing some negative comps over the last few years, this was a welcomed turn around but it was still under the company's prior forecast for the full year.
Cautious on 2017
While it wasn't seeing a big pick-up in traffic in the fourth quarter, it wasn't awful either. It expects the "challenging operating environment" to continue into 2017.
It expects comparable store sales growth to be flat for the year, which isn't exactly inspiring.
Potbelly will open 45 to 60 new shops in the year, with 30 to 40 being company-owned shops.
Earnings are expected to be in the range of $0.45 to $0.47.
2 estimates moved higher for 2017 in the past 7 days pushing the Zacks Consensus up to $0.46 from $0.45. This is earnings growth of 2.2%.
The outlook appears to be better for 2018 with analysts expecting earnings growth of 14%.
Is It Time to Buy the Restaurants?
While Potbelly's fundamentals seem to be improving, it still faces challenges.
The shares have traded in a narrow range for the last year. And they aren't cheap.
Potbelly has a forward P/E of 29. And it's earnings growth, at least for 2017, isn't exactly stellar either.
So while estimates are moving up, shares are still an expensive proposition.
If you're an investor looking for a play in the restaurant group, however, you'll want to keep Potbelly on your watch list.
Zacks' best stocks under $10
As a Zacks Rank #1 Strong Buy, today's Bull of the Day has a short-term 1 to 3-month profit zone. But the Zacks Rank system also leads to longer-term investments. Starting today, you can look inside our lowest-priced stocks with 2X and 3X profit potential plus other private portfolios. Simply click here>>
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Bull of the Day: Potbelly (PBPB)
Potbelly Corporation (PBPB - Free Report) appears to be turning the corner. This Zacks Rank #1 (Strong Buy) is expected to see earnings growth in 2017 and 2018.
Potbelly's operates over 440 company-owned and franchised sandwich restaurants in the US, the Middle East, the UK and Canada. It offers warm sandwiches, signature salads and soups and shakes.
Some of the locations even offer live music, courtesy of local musicians.
Big Beat in the Fourth Quarter
Investors have been worried about the restaurant chains as costs have risen, especially for labor.
But those concerns didn't seem to phase Potbelly as it reported much better than expected earnings in the fourth quarter. Earnings came in at $0.15 versus the $0.07 estimate, for a 114% beat.
Total revenue in the quarter rose 7.6% to $102.4 million from $95.1 million a year ago.
It opened 28 new restaurants, including 25 company-operated shops and 3 franchised shops.
Company owned comparable store sales, which make up over 400 of the total stores, rose 0.1%.
For the full year, comparable store sales increased 1.4%. After seeing some negative comps over the last few years, this was a welcomed turn around but it was still under the company's prior forecast for the full year.
Cautious on 2017
While it wasn't seeing a big pick-up in traffic in the fourth quarter, it wasn't awful either. It expects the "challenging operating environment" to continue into 2017.
It expects comparable store sales growth to be flat for the year, which isn't exactly inspiring.
Potbelly will open 45 to 60 new shops in the year, with 30 to 40 being company-owned shops.
Earnings are expected to be in the range of $0.45 to $0.47.
2 estimates moved higher for 2017 in the past 7 days pushing the Zacks Consensus up to $0.46 from $0.45. This is earnings growth of 2.2%.
The outlook appears to be better for 2018 with analysts expecting earnings growth of 14%.
Is It Time to Buy the Restaurants?
While Potbelly's fundamentals seem to be improving, it still faces challenges.
The shares have traded in a narrow range for the last year. And they aren't cheap.
Potbelly has a forward P/E of 29. And it's earnings growth, at least for 2017, isn't exactly stellar either.
So while estimates are moving up, shares are still an expensive proposition.
If you're an investor looking for a play in the restaurant group, however, you'll want to keep Potbelly on your watch list.
Zacks' best stocks under $10
As a Zacks Rank #1 Strong Buy, today's Bull of the Day has a short-term 1 to 3-month profit zone. But the Zacks Rank system also leads to longer-term investments. Starting today, you can look inside our lowest-priced stocks with 2X and 3X profit potential plus other private portfolios. Simply click here>>