Collins Foods shares lift on Citi upgrade
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More news: Shares in Collins Foods pared Tuesday's declines in early trading after Citi upgraded its rating on the KFC and Taco Bell operator to 'buy'.
Collins Foods shares were up 2.6% to $8.46 by 10:35am AEDT, having shed nearly 30% since the start of the year.
Citi upgrades Collins Foods to 'buy' on KFC Australia growth
The news: Citi upgraded its rating on Collins Foods to 'buy' after the KFC and Taco Bell operator reported a mixed first-half result on Tuesday.
The numbers: While Citi upgraded its recommendation on the group from 'neutral' to 'buy', Macquarie retained its 'neutral' rating and cut its target price by 1% to $8.20. Goldman Sachs kept its 'buy' rating and $10 price target.
On Tuesday, Collins Foods lowered its guidance for full-year earnings margin after a slide in first-half profit, sending its shares down 4.3%.
The context: Citi analysts said they see a pathway for improved medium-term profitability for the group's core KFC Australia franchise on the back of same-store sales growth and cost of goods sold (COGS) tailwinds.
There could be further upside from mergers and acquisitions, they said, while Collins Foods' valuation appears "undemanding" relative to its peers.
Macquarie analysts agreed that KFC Australia is "performing well in a challenging environment", but said they await further evidence of a sales and margin recovery before becoming more positive on the stock.
Likewise, Goldmach Sachs analysts forecast margin recovery led by KFC Australia into 2025, supported by an improving sales trajectory, a less demanding comparable period and a more favourable cost outlook.
The sources: Citi research, Macquarie research, Goldman Sachs research
