Intrinsic value of El Pollo Loco Holdings, Inc. - LOCO

Previous Close

$9.98

  Intrinsic Value

$1.67

stock screener

  Rating & Target

str. sell

-83%

Previous close

$9.98

 
Intrinsic value

$1.67

 
Up/down potential

-83%

 
Rating

str. sell

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 0001), $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 0.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  11.60
  10.94
  10.35
  9.81
  9.33
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
  6.86
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
Revenue, $m
  487
  540
  596
  654
  715
  779
  845
  914
  986
  1,060
  1,137
  1,218
  1,302
  1,388
  1,479
  1,573
  1,671
  1,773
  1,879
  1,990
  2,105
  2,225
  2,351
  2,482
  2,620
  2,763
  2,913
  3,070
  3,234
  3,406
Variable operating expenses, $m
  478
  529
  582
  638
  697
  758
  822
  888
  957
  1,028
  1,092
  1,169
  1,250
  1,333
  1,420
  1,510
  1,604
  1,702
  1,804
  1,910
  2,021
  2,137
  2,257
  2,384
  2,515
  2,653
  2,797
  2,947
  3,105
  3,270
Fixed operating expenses, $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
Total operating expenses, $m
  478
  529
  582
  638
  697
  758
  822
  888
  957
  1,028
  1,092
  1,169
  1,250
  1,333
  1,420
  1,510
  1,604
  1,702
  1,804
  1,910
  2,021
  2,137
  2,257
  2,384
  2,515
  2,653
  2,797
  2,947
  3,105
  3,270
Operating income, $m
  9
  11
  13
  16
  18
  21
  23
  26
  29
  32
  45
  49
  52
  55
  59
  63
  67
  71
  75
  79
  84
  89
  94
  99
  104
  110
  116
  122
  129
  136
EBITDA, $m
  32
  35
  39
  43
  47
  51
  55
  60
  65
  69
  74
  80
  85
  91
  97
  103
  109
  116
  123
  130
  138
  146
  154
  162
  171
  181
  191
  201
  212
  223
Interest expense (income), $m
  3
  4
  5
  6
  8
  9
  10
  12
  13
  15
  17
  18
  20
  22
  24
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  57
  61
  64
  68
Earnings before tax, $m
  5
  6
  7
  8
  9
  10
  11
  13
  14
  15
  27
  28
  30
  31
  33
  35
  37
  38
  40
  42
  44
  46
  49
  51
  53
  56
  59
  62
  64
  68
Tax expense, $m
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
Net income, $m
  4
  4
  5
  6
  7
  7
  8
  9
  10
  11
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  36
  37
  39
  41
  43
  45
  47
  49

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  503
  558
  615
  676
  739
  804
  873
  944
  1,018
  1,095
  1,175
  1,258
  1,345
  1,434
  1,528
  1,625
  1,726
  1,831
  1,941
  2,055
  2,175
  2,299
  2,429
  2,565
  2,706
  2,854
  3,009
  3,171
  3,341
  3,518
Adjusted assets (=assets-cash), $m
  503
  558
  615
  676
  739
  804
  873
  944
  1,018
  1,095
  1,175
  1,258
  1,345
  1,434
  1,528
  1,625
  1,726
  1,831
  1,941
  2,055
  2,175
  2,299
  2,429
  2,565
  2,706
  2,854
  3,009
  3,171
  3,341
  3,518
Revenue / Adjusted assets
  0.968
  0.968
  0.969
  0.967
  0.968
  0.969
  0.968
  0.968
  0.969
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
  0.968
Average production assets, $m
  289
  321
  354
  389
  425
  463
  502
  543
  585
  630
  676
  723
  773
  825
  878
  934
  992
  1,053
  1,116
  1,182
  1,250
  1,322
  1,397
  1,475
  1,556
  1,641
  1,730
  1,823
  1,921
  2,023
Working capital, $m
  -75
  -84
  -92
  -101
  -111
  -121
  -131
  -142
  -153
  -164
  -176
  -189
  -202
  -215
  -229
  -244
  -259
  -275
  -291
  -308
  -326
  -345
  -364
  -385
  -406
  -428
  -452
  -476
  -501
  -528
Total debt, $m
  96
  118
  142
  167
  193
  220
  248
  277
  308
  339
  372
  406
  442
  479
  517
  557
  599
  642
  687
  734
  783
  834
  887
  943
  1,001
  1,062
  1,126
  1,193
  1,262
  1,335
Total liabilities, $m
  207
  229
  253
  278
  304
  331
  359
  388
  418
  450
  483
  517
  553
  590
  628
  668
  709
  753
  798
  845
  894
  945
  998
  1,054
  1,112
  1,173
  1,237
  1,303
  1,373
  1,446
Total equity, $m
  296
  328
  362
  398
  435
  474
  514
  556
  600
  645
  692
  741
  792
  845
  900
  957
  1,017
  1,079
  1,143
  1,211
  1,281
  1,354
  1,431
  1,510
  1,594
  1,681
  1,772
  1,868
  1,968
  2,072
Total liabilities and equity, $m
  503
  557
  615
  676
  739
  805
  873
  944
  1,018
  1,095
  1,175
  1,258
  1,345
  1,435
  1,528
  1,625
  1,726
  1,832
  1,941
  2,056
  2,175
  2,299
  2,429
  2,564
  2,706
  2,854
  3,009
  3,171
  3,341
  3,518
Debt-to-equity ratio
  0.320
  0.360
  0.390
  0.420
  0.440
  0.460
  0.480
  0.500
  0.510
  0.530
  0.540
  0.550
  0.560
  0.570
  0.570
  0.580
  0.590
  0.600
  0.600
  0.610
  0.610
  0.620
  0.620
  0.620
  0.630
  0.630
  0.640
  0.640
  0.640
  0.640
Adjusted equity ratio
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  4
  5
  6
  7
  7
  8
  9
  10
  11
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  36
  37
  39
  41
  43
  45
  47
  49
Depreciation, amort., depletion, $m
  23
  24
  26
  27
  29
  30
  32
  34
  36
  38
  29
  31
  33
  36
  38
  40
  43
  45
  48
  51
  54
  57
  60
  64
  67
  71
  75
  79
  83
  87
Funds from operations, $m
  26
  29
  31
  33
  35
  38
  40
  43
  46
  49
  49
  52
  55
  59
  62
  66
  69
  73
  77
  82
  86
  91
  96
  101
  106
  112
  117
  124
  130
  137
Change in working capital, $m
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
Cash from operations, $m
  34
  37
  39
  42
  45
  48
  51
  54
  57
  60
  61
  64
  68
  72
  76
  80
  85
  89
  94
  99
  104
  110
  115
  121
  127
  134
  141
  148
  155
  163
Maintenance CAPEX, $m
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -22
  -23
  -25
  -27
  -29
  -31
  -33
  -36
  -38
  -40
  -43
  -45
  -48
  -51
  -54
  -57
  -60
  -64
  -67
  -71
  -75
  -79
  -83
New CAPEX, $m
  -30
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
  -63
  -66
  -69
  -72
  -75
  -78
  -81
  -85
  -89
  -93
  -97
  -102
Cash from investing activities, $m
  -41
  -44
  -47
  -50
  -53
  -56
  -59
  -63
  -66
  -69
  -73
  -77
  -81
  -85
  -90
  -94
  -98
  -104
  -108
  -114
  -120
  -126
  -132
  -138
  -145
  -152
  -160
  -168
  -176
  -185
Free cash flow, $m
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -9
  -12
  -12
  -13
  -13
  -13
  -13
  -14
  -14
  -15
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
Issuance/(repayment) of debt, $m
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  35
  37
  38
  40
  42
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
Issuance/(repurchase) of shares, $m
  27
  28
  29
  30
  31
  31
  32
  33
  33
  34
  27
  28
  29
  30
  31
  32
  33
  34
  35
  37
  38
  39
  41
  43
  44
  46
  48
  51
  53
  55
Cash from financing (excl. dividends), $m  
  49
  51
  53
  55
  57
  58
  60
  62
  63
  66
  60
  62
  64
  67
  69
  72
  75
  77
  80
  84
  87
  90
  94
  99
  102
  107
  112
  118
  123
  128
Total cash flow (excl. dividends), $m
  42
  43
  45
  47
  48
  50
  51
  53
  55
  57
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
  78
  81
  85
  89
  93
  97
  102
  106
Retained Cash Flow (-), $m
  -31
  -32
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -62
  -65
  -67
  -70
  -73
  -77
  -80
  -83
  -87
  -91
  -95
  -100
  -105
Prev. year cash balance distribution, $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 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
  11
  11
  11
  11
  11
  11
  11
  11
  11
  11
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  11
  10
  10
  9
  9
  8
  8
  7
  6
  6
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  93.5
  87.8
  82.8
  78.4
  74.5
  71.1
  67.9
  65.1
  62.5
  60.2
  58.5
  56.9
  55.4
  54.0
  52.7
  51.5
  50.3
  49.2
  48.1
  47.1
  46.1
  45.2
  44.2
  43.4
  42.5
  41.7
  40.9
  40.1
  39.3
  38.6

El Pollo Loco Holdings, Inc. specializes in fire-grilling citrus-marinated chicken and operates in the limited service restaurant (LSR) segment. The Company's menu features its signature product, citrus-marinated fire-grilled chicken, and a range of Mexican-inspired entrees that it creates from chicken. Every day in every restaurant, the Company marinates and fire-grills its chicken over open flames, and hand-slices whole tomatoes, avocados, serrano peppers and cilantro to make its salsas, guacamole and cilantro dressings from scratch. The Company also offers burritos, salads, tostadas, bowls, stuffed quesadillas and chicken entrees. The Company's entrees include Chicken Avocado Burrito, Under 500 Calorie entrees, Ultimate Pollo Bowl, and Stuffed Chicken Avocado Quesadilla. As of December 28, 2016, the Company had 460 restaurants, consisting of 201 Company-operated and 259 franchised restaurants. The Company also offers additional proteins, such as shrimp, carnitas and beef.

FINANCIAL RATIOS  of  El Pollo Loco Holdings, Inc. (LOCO)

Valuation Ratios
P/E Ratio 21.3
Price to Sales 1
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 7.8
Price to Free Cash Flow 32
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 25.5%
Gross Margin - 3 Yr. Avg. 26.4%
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 $436 million for the last fiscal year's total revenue generated by El Pollo Loco Holdings, Inc.. The default revenue input number comes from 0001 income statement of El Pollo Loco Holdings, Inc.. 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 11.6% 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 4.3%, whose default value for LOCO is calculated based on our internal credit rating of El Pollo Loco Holdings, Inc., 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, Inc..
    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 98.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 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 5.4% for El Pollo Loco Holdings, Inc..

Corporate tax rate of 27% is the nominal tax rate for El Pollo Loco Holdings, Inc.. 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 59.4%.

Life of production assets of 23.2 years is the average useful life of capital assets used in El Pollo Loco Holdings, Inc. 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 -15.5%. 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 - $265.236 million for El Pollo Loco Holdings, Inc. - 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 38.963 million for El Pollo Loco Holdings, Inc. 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, Inc. at the current share price and the inputted number of shares is $0.4 billion.

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