Franchise Group’s Fiscal Year 2021 Outlook Beats Estimates After Surprise 4Q Loss


Franchise Group forecasted better-than-expected results for the fiscal year 2021 after reporting a surprise loss in the fiscal fourth quarter. Also, revenues missed consensus estimates. Shares of the franchised businesses operator increased 3.3% on March 10 to close at $40.48.

Franchise Group (FRG) swung to a surprise loss of $0.12 per share in 4Q, compared to the Street estimates of $0.11 per share. Revenues of $496.3 million lagged analysts’ expectations of $498.1 million.

Adjusted EBITDA came in at $28.8 million in the quarter. (See Franchise Group stock analysis on TipRanks)

Franchise Group CEO Brian Kahn said, “In the fourth quarter of 2020, we continued to enhance our cash flow by driving revenue and cost synergies from an increasingly diverse set of operating brands. We expect to carry this momentum into 2021.”

For the fiscal year 2021, the company anticipates total revenue of $3 billion to $3.1 billion, versus analysts’ expectations of $2.44 billion. Adjusted EPS is expected to be $3.25, versus the consensus estimate of $2.83.

Additionally, the company announced the completion of its acquisition of Pet Supplies Plus, an omnichannel retail chain and franchisor of pet supplies and services.

On Feb. 24, Barrington analyst Alexander Paris reiterated a Buy rating and a price target of $40 (1.2% downside potential) on the stock.

The analyst believes “as FRG transitions its revenue base from company-owned stores (lower-margin retail revenue) to one that includes a greater proportion of franchised stores (higher-margin franchise fee and royalty revenue), FRG’s valuation will expand (increased earnings and free cash flow visibility).”

“The combination of higher earnings, an expanding multiple and a sustainable and growing dividend, which is targeted to be 25% of adjusted EBITDA over time and currently yields 4.2%, should provide shareholders with an above-average total return over time,” he further added.

The consensus rating among analysts is a Strong Buy based on 3 unanimous Buys. The average analyst price target stands at $39.33 and implies downside potential of almost 3% to current levels. Shares have gained 56.5% over the past six months.

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