Morgan Stanley gives Guzman y Gomez 'overweight' rating
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The news: Morgan Stanley initiated coverage of ASX newcomer Guzman y Gomez (GYG) with an 'overweight' rating, citing "attractive" growth potential and confidence in long-term market share gains and profitability.
The numbers: GYG's shares were up 0.6% to $28.99 by 12:45pm AEST, having added more than 30% since the company floated on the ASX at $22 per share in June.
Morgan Stanley gave GYG an initial price target of $31.80, forecasting a 12-month forward enterprise-value-to-EBITDA ratio of 47.5x, ahead of fast-growing US restaurant peers at around 40x.
The context: Morgan Stanley, which underwrote GYG's listing alongside Barrenjoey, noted that GYG has a "long runway for growth", supported by network expansion and an above-sector average same store sales trajectory.
The analysts said that "solid operative metrics" underpin their confidence in future brand success, expecting volume growth to drive operational leverage and provide significant tailwind to margins and profitability over the next three to five years.
The analysts noted that key risks to the stock include GYG's ability to manage a larger diverse network, overall consumer spending, and an inability of Mexican cuisine to resonate to the same extent as burgers and chicken in the quick service restaurants space.
In recent weeks, analysts from Morgans and Wilsons Advisory set out bullish outlooks on GYG, while Morningstar assigned the stock a 'high' uncertainty rating.
The source: Morgan Stanley research
