What Happened?
Shares of breakfast restaurant chain First Watch Restaurant Group (NASDAQ: FWRG) jumped 7.7% in the morning session after TD Cowen upgraded the stock's rating from Hold to Buy and assigned a price target of $22, which implied a potential 20% upside. The firm anticipated improvements in same-store sales due to "more effective" marketing. This upgrade suggested that TD Cowen felt there was a decent possibility of an upward surprise to FWRG's growth projection, which could translate to improved investor sentiment.
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What The Market Is Telling Us
First Watch’s shares are very volatile and have had 22 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 21 days ago when the stock dropped 4.7% on the news that the company delivered mixed fourth-quarter results: EPS fell short, and full-year EBITDA guidance came in slightly below Wall Street estimates.
On the other hand, same-store sales and EBITDA surpassed analysts' expectations. A key concern was the decline in same-restaurant traffic, which dropped 3% year-on-year despite ongoing expansion efforts. This decline led to a modest dip in same-restaurant sales, highlighting potential challenges in sustaining customer demand. Despite this, sales increased 7.6% from the prior year, driven by new store openings.
Looking ahead, management guided for low single-digit same-restaurant sales growth in 2025, with traffic expected to be flat to slightly positive. However, the company anticipated 20% total revenue growth, primarily driven by new restaurant openings. Overall, while expansion efforts remained strong, softer same-store performance and rising costs remained key concerns.
First Watch is down 3.4% since the beginning of the year, and at $18.16 per share, it is trading 28.9% below its 52-week high of $25.52 from April 2024. Investors who bought $1,000 worth of First Watch’s shares at the IPO in September 2021 would now be looking at an investment worth $820.38.
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