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Sick of Chipotle? Try Del Taco

July 21, 2017

Taco 'bout an undervalued company, one analyst says of Del Taco Restaurants.
Taco ’bout an undervalued company, one analyst says of Del Taco Restaurants. ILLUSTRATION: GETTY IMAGES/ISTOCKPHOTO

As food safety issues continue to weigh on Chipotle shares, investors might find a cleaner story elsewhere in the world of Mexican-inspired fast food.

Chipotle’s stock fell further on Thursday, after a local health director in Virginia said that about 60 patrons reported becoming ill at a Chipotle Mexican Grill location in his county. The company has previously stated that it suspected norovirus to be the culprit.

On Thursday, Wedbush analyst Nick Setyan suggested a more promising restaurant chain to invest in, reiterating his Outperform rating on Del Taco Restaurants, a small chain that sells burgers and Mexican fare. Patrons seem to like new products and old promotions, he writes. The company recently brought back carnitas, a customer favorite.

Del Taco plans to spend more on marketing in the second half of the year, which could fuel growth.

The chain has more than 500 locations, while Chipotle has more than 1,500. As a more regional business, Del Taco, which operates mainly in the west and southwest, doesn’t have the same name recognition among investors that Chipotle has. Given that lack of name recognition, its stock is cheaper than those of Chipotle and Shake Shack.

“We believe there is a disconnect between Del Taco’s category-leading fundamentals and its category-trailing valuation,” Setyan writes. He sees shares rising to $17 from a recent $12.53.

Big Picture: Chipotle’s in trouble again after reports of illnesses at a Virginia store, but an analyst suggested a different restaurant chain.

http://bit.ly/2vqJqy4

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