Markets

Analyst Actions: Credit Suisse Lowers P.F. Chang's China Bistro's Price Target

Challenged Concepts for Some Time to Come; Lowering Estimates and Target Price to $29 (from $30).

Post analyst day, still no reason to own the shares: "We continue to believe the Bistro lacks a credible plan to reinvigorate the concept, and, with Pei Wei Asian Market only in its infancy, capital continues to flow to the admittedly flawed legacy Pei Wei Asian Diner. Investments in value, marketing and remodels are needed just to hold onto traffic - significant uncertainties around their effectiveness remain, and, regardless, the associated costs represent a multi-year headwind to the earnings trajectory."

Bistro initiatives don't address all issues, only target super-users. "A new lunch menu should help lunch value, but doesn't address value and entry price point issues at dinner. Sushi and remodels meant to address less menu differentiation and elevate the customer experience appear similarly half-hearted to us. Even more importantly, marketing continues to only target a captive audience of super-users. Without a broader (and more expensive) push, we don't see how initiatives bring in lapsed or new users."

Still putting capital into a legacy Pei Wei business that admittedly doesn't work: "Unit economics at Pei Wei are challenged enough that PFCB has redrawn the concept as "Pei Wei Asian Market." Without a single unit open or visibility into unit economics, we are avoiding too much excitement, and, until it can grow, PFCB continues to materially accelerate unit growth and invest remodel capex in the legacy Pei Wei business - we struggle to see how this is a good use of capital."

Est. changes and valuation - TP falls to $29 from $30: "On the back of higher G&A related to stock comp (the largest adjustment), lower Bistro comps, and lower PW margins (traffic from BOGO coming at a price), our F11 EPS est. falls to $1.55 from $1.59, F12 to $1.55 from $1.81, and F13 to $1.77 from $1.99. Our $29 (from $30) price target is based on a 17x multiple applied to our NTM, 12 mos from now, EPS est. of $1.69."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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