Is El Pollo Loco Riding Chipotle’s Wave?

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El Pollo Loco Holdings Inc. (NASDAQ: LOCO) had a very strong IPO debut on Friday, rising some 60% to close at $24.03 after selling 7.1 million shares at $15 per share. Shares were indicated up another 6% in early indications on Monday. Our take: El Pollo Loco is riding the wave with Chipotle Mexican Grill Inc. (NYSE: CMG).

Before you get into the moves behind El Pollo Loco, consider what has happened with Chipotle. Its aim is a healthier fast-food version of Mexican food. It now has a market value of almost $21 billion, and after beating earnings recently it now trades with forward earnings multiples of 50 times expected 2014 earnings and almost 40 times expected 2015 earnings.

Chipotle keeps growing, but it has been public since 2006. It opened 45 new restaurants during the second quarter, bringing the chain’s total restaurant count up to 1,681. It is hard to imagine, but Chipotle was first launched in 1993. Chipotle’s sales in 2013 were $3.21 billion.

Now, let’s size up El Pollo Loco. This growing restaurant concept chain specializes in fire-grilling citrus-marinated chicken. It was founded in 1980 and has more than 400 company-owned and franchised restaurant locations. The difference here is that its markets have hardly been built out as its locations are only in Arizona, California, Nevada, Texas and Utah.

Assuming that the overallotment option was exercised, El Pollo Loco will have 36,929,836 shares outstanding. This gives it a market cap of $886 million, and it remains a regional to national growth expansion opportunity. El Pollo Loco restaurants generated company-operated restaurant revenue of $294.3 million and $76.2 million, and systemwide sales of $657.6 million and $172.0 million, for the year ended December 25, 2013 and the thirteen weeks ended March 26, 2014, respectively.

Comparing a grilled chicken destination to a Mexican food destination may not seem right on the surface, but the idea is that fast food and fast casual dining food is changing from hamburgers and french fries to offerings that consumers think is healthier. Whether El Pollo Loco can eventually grow into a chain that rivals the size of Chipotle will take time to learn. Still, IPO investors are almost certainly making this comparison.

El Pollo Loco shares were up another 5% at $25.45 in Monday’s premarket trading, and up more than 22% to $29.30 shortly after the opening bell.

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