Intrinsic value of El Pollo Loco Holdings - LOCO

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$14.20

  Intrinsic Value

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  Value-price divergence*

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of LOCO stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  7.04
  7.90
  7.61
  7.35
  7.11
  6.90
  6.71
  6.54
  6.39
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.44
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
Revenue, $m
  380
  383
  412
  442
  474
  507
  541
  576
  613
  651
  691
  733
  776
  821
  868
  917
  969
  1,022
  1,078
  1,137
  1,198
  1,262
  1,329
  1,400
  1,473
  1,550
  1,631
  1,716
  1,804
  1,897
  1,995
Variable operating expenses, $m
 
  66
  69
  72
  76
  79
  83
  86
  90
  94
  99
  78
  83
  88
  93
  98
  104
  109
  115
  121
  128
  135
  142
  150
  157
  166
  174
  183
  193
  203
  213
Fixed operating expenses, $m
 
  256
  263
  269
  276
  283
  290
  297
  305
  312
  320
  328
  336
  345
  353
  362
  371
  380
  390
  400
  410
  420
  430
  441
  452
  463
  475
  487
  499
  512
  524
Total operating expenses, $m
  345
  322
  332
  341
  352
  362
  373
  383
  395
  406
  419
  406
  419
  433
  446
  460
  475
  489
  505
  521
  538
  555
  572
  591
  609
  629
  649
  670
  692
  715
  737
Operating income, $m
  35
  61
  81
  101
  122
  145
  168
  192
  218
  244
  272
  326
  357
  389
  422
  457
  494
  533
  573
  616
  661
  708
  757
  809
  864
  921
  982
  1,045
  1,112
  1,183
  1,257
EBITDA, $m
  51
  91
  112
  132
  154
  177
  201
  226
  252
  279
  307
  337
  368
  401
  435
  471
  508
  548
  589
  632
  678
  726
  776
  829
  885
  944
  1,006
  1,071
  1,139
  1,211
  1,286
Interest expense (income), $m
  3
  4
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  32
  33
  35
  37
Earnings before tax, $m
  31
  57
  76
  96
  116
  138
  161
  184
  209
  235
  262
  315
  344
  375
  408
  442
  478
  515
  555
  596
  640
  685
  733
  784
  837
  893
  952
  1,014
  1,079
  1,148
  1,220
Tax expense, $m
  13
  15
  20
  26
  31
  37
  43
  50
  56
  63
  71
  85
  93
  101
  110
  119
  129
  139
  150
  161
  173
  185
  198
  212
  226
  241
  257
  274
  291
  310
  329
Net income, $m
  18
  41
  55
  70
  85
  101
  117
  134
  152
  171
  191
  230
  251
  274
  298
  323
  349
  376
  405
  435
  467
  500
  535
  572
  611
  652
  695
  740
  788
  838
  891

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  471
  491
  528
  567
  608
  650
  693
  739
  786
  835
  886
  939
  995
  1,053
  1,113
  1,176
  1,242
  1,311
  1,382
  1,458
  1,536
  1,618
  1,704
  1,795
  1,889
  1,988
  2,091
  2,200
  2,313
  2,433
  2,558
Adjusted assets (=assets-cash), $m
  469
  491
  528
  567
  608
  650
  693
  739
  786
  835
  886
  939
  995
  1,053
  1,113
  1,176
  1,242
  1,311
  1,382
  1,458
  1,536
  1,618
  1,704
  1,795
  1,889
  1,988
  2,091
  2,200
  2,313
  2,433
  2,558
Revenue / Adjusted assets
  0.810
  0.780
  0.780
  0.780
  0.780
  0.780
  0.781
  0.779
  0.780
  0.780
  0.780
  0.781
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
Average production assets, $m
  174
  168
  181
  194
  208
  222
  237
  252
  268
  285
  303
  321
  340
  360
  380
  402
  424
  448
  472
  498
  525
  553
  582
  613
  645
  679
  714
  751
  790
  831
  874
Working capital, $m
  -31
  -8
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
Total debt, $m
  104
  141
  159
  177
  197
  217
  237
  259
  281
  305
  329
  354
  380
  408
  437
  467
  498
  531
  565
  600
  638
  677
  718
  760
  805
  852
  901
  953
  1,007
  1,063
  1,123
Total liabilities, $m
  206
  233
  251
  269
  289
  309
  329
  351
  373
  397
  421
  446
  472
  500
  529
  559
  590
  623
  657
  692
  730
  769
  810
  852
  897
  944
  993
  1,045
  1,099
  1,155
  1,215
Total equity, $m
  265
  258
  277
  298
  319
  341
  364
  388
  412
  438
  465
  493
  522
  553
  584
  617
  652
  688
  726
  765
  806
  850
  895
  942
  992
  1,044
  1,098
  1,155
  1,215
  1,277
  1,343
Total liabilities and equity, $m
  471
  491
  528
  567
  608
  650
  693
  739
  785
  835
  886
  939
  994
  1,053
  1,113
  1,176
  1,242
  1,311
  1,383
  1,457
  1,536
  1,619
  1,705
  1,794
  1,889
  1,988
  2,091
  2,200
  2,314
  2,432
  2,558
Debt-to-equity ratio
  0.392
  0.550
  0.570
  0.600
  0.620
  0.630
  0.650
  0.670
  0.680
  0.690
  0.710
  0.720
  0.730
  0.740
  0.750
  0.760
  0.760
  0.770
  0.780
  0.780
  0.790
  0.800
  0.800
  0.810
  0.810
  0.820
  0.820
  0.830
  0.830
  0.830
  0.840
Adjusted equity ratio
  0.561
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  18
  41
  55
  70
  85
  101
  117
  134
  152
  171
  191
  230
  251
  274
  298
  323
  349
  376
  405
  435
  467
  500
  535
  572
  611
  652
  695
  740
  788
  838
  891
Depreciation, amort., depletion, $m
  16
  30
  31
  31
  32
  32
  33
  33
  34
  34
  35
  11
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  20
  22
  23
  24
  25
  26
  28
  29
Funds from operations, $m
  45
  72
  86
  101
  117
  133
  150
  168
  186
  206
  226
  240
  263
  286
  310
  336
  363
  391
  421
  452
  484
  519
  555
  593
  633
  675
  719
  765
  814
  866
  920
Change in working capital, $m
  -4
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
Cash from operations, $m
  49
  83
  87
  102
  117
  134
  151
  168
  187
  206
  227
  241
  264
  287
  311
  337
  364
  392
  422
  453
  486
  520
  556
  594
  634
  676
  720
  767
  816
  867
  922
Maintenance CAPEX, $m
  0
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -26
  -28
New CAPEX, $m
  -37
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -22
  -23
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
Cash from investing activities, $m
  -35
  -17
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -35
  -35
  -37
  -40
  -42
  -44
  -45
  -47
  -50
  -52
  -56
  -58
  -61
  -64
  -67
  -71
Free cash flow, $m
  14
  65
  68
  82
  97
  112
  128
  145
  162
  181
  200
  213
  234
  256
  279
  303
  328
  354
  382
  411
  442
  474
  508
  544
  581
  621
  662
  706
  752
  800
  851
Issuance/(repayment) of debt, $m
  -19
  17
  18
  18
  19
  20
  21
  22
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  59
Issuance/(repurchase) of shares, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -18
  17
  18
  18
  19
  20
  21
  22
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  59
Total cash flow (excl. dividends), $m
  -4
  83
  86
  101
  116
  132
  149
  167
  185
  204
  224
  238
  260
  283
  307
  333
  359
  387
  416
  447
  479
  513
  549
  587
  626
  668
  712
  758
  806
  857
  911
Retained Cash Flow (-), $m
  -20
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -54
  -57
  -60
  -63
  -66
Prev. year cash balance distribution, $m
 
  6
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  70
  66
  80
  95
  110
  126
  143
  160
  178
  197
  210
  231
  253
  276
  300
  325
  351
  379
  408
  438
  470
  504
  539
  577
  616
  657
  701
  746
  794
  845
Discount rate, %
 
  5.20
  5.46
  5.73
  6.02
  6.32
  6.64
  6.97
  7.32
  7.68
  8.07
  8.47
  8.89
  9.34
  9.81
  10.30
  10.81
  11.35
  11.92
  12.51
  13.14
  13.80
  14.49
  15.21
  15.97
  16.77
  17.61
  18.49
  19.41
  20.38
  21.40
PV of cash for distribution, $m
 
  66
  60
  68
  75
  81
  86
  89
  91
  92
  91
  86
  83
  79
  74
  69
  63
  56
  50
  43
  37
  31
  26
  21
  16
  13
  10
  7
  5
  4
  3
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

El Pollo Loco Holdings, Inc., through its subsidiary, El Pollo Loco, Inc., develops, franchises, licenses, and operates quick-service restaurants under the El Pollo Loco name in the United States. The company offers individual and family-sized chicken meals, Mexican-inspired entrees, sides, and, alternative proteins. As of February 20, 2017, it had approximately 460 company-owned and franchised restaurants in Arizona, California, Nevada, Texas, and Utah. The company was formerly known as Chicken Acquisition Corp. and changed its name to El Pollo Loco Holdings, Inc. in April 2014. El Pollo Loco Holdings, Inc. was founded in 1980 and is headquartered in Costa Mesa, California.

FINANCIAL RATIOS  of  El Pollo Loco Holdings (LOCO)

Valuation Ratios
P/E Ratio 30.3
Price to Sales 1.4
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 11.1
Price to Free Cash Flow 45.5
Growth Rates
Sales Growth Rate 7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 19.4%
Cap. Spend. - 3 Yr. Gr. Rate 21.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 39.2%
Total Debt to Equity 39.2%
Interest Coverage 11
Management Effectiveness
Return On Assets 4.2%
Ret/ On Assets - 3 Yr. Avg. 3.4%
Return On Total Capital 4.9%
Ret/ On T. Cap. - 3 Yr. Avg. 7.7%
Return On Equity 7.1%
Return On Equity - 3 Yr. Avg. 16.7%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 46.1%
Gross Margin - 3 Yr. Avg. 46.5%
EBITDA Margin 13.2%
EBITDA Margin - 3 Yr. Avg. 11.2%
Operating Margin 9.2%
Oper. Margin - 3 Yr. Avg. 11.5%
Pre-Tax Margin 8.2%
Pre-Tax Margin - 3 Yr. Avg. 4.9%
Net Profit Margin 4.7%
Net Profit Margin - 3 Yr. Avg. 7.9%
Effective Tax Rate 41.9%
Eff/ Tax Rate - 3 Yr. Avg. 129.5%
Payout Ratio 0%

LOCO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LOCO stock intrinsic value calculation we used $355 million for the last fiscal year's total revenue generated by El Pollo Loco Holdings. The default revenue input number comes from 2016 income statement of El Pollo Loco Holdings. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our LOCO stock valuation model: a) initial revenue growth rate of 7.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.2%, whose default value for LOCO is calculated based on our internal credit rating of El Pollo Loco Holdings, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of El Pollo Loco Holdings.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of LOCO stock the variable cost ratio is equal to 17.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $250 million in the base year in the intrinsic value calculation for LOCO stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for El Pollo Loco Holdings.

Corporate tax rate of 27% is the nominal tax rate for El Pollo Loco Holdings. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the LOCO stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for LOCO are equal to 43.8%.

Life of production assets of 31.1 years is the average useful life of capital assets used in El Pollo Loco Holdings operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for LOCO is equal to -2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $245 million for El Pollo Loco Holdings - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 37.868 million for El Pollo Loco Holdings is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of El Pollo Loco Holdings at the current share price and the inputted number of shares is $0.5 billion.


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COMPANY NEWS

▶ El Pollo Loco to Present at Investor Conferences in June   [May-24-17 04:00PM  GlobeNewswire]
▶ El Pollo Loco beats 1Q profit forecasts   [05:02AM  Associated Press]
▶ Shake Shack Dives On Same-Store Sales; Wingstop, Del Taco, El Pollo Loco Top   [May-04-17 04:48PM  Investor's Business Daily]
▶ Retail And E-Commerce News And Stocks To Watch   [03:19PM  Investor's Business Daily]
▶ El Pollo Loco CEO to retire   [Mar-10-17 03:45PM  at bizjournals.com]
▶ El Pollo Loco CEO to retire   [03:45PM  American City Business Journals]
▶ El Pollo Loco Unveils Four New Baja Shrimp Items   [Feb-06-17 09:00AM  GlobeNewswire]
▶ Is El Pollo LoCo Holdings Inc (LOCO) A Good Stock To Buy?   [Dec-12-16 08:30PM  at Insider Monkey]
▶ El Pollo Loco Launches Online Ordering and Mobile App   [Dec-01-16 09:00AM  GlobeNewswire]
Stock chart of LOCO Financial statements of LOCO Annual reports of LOCO
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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