What Happened?

Shares of casual restaurant chain Portillo’s (NASDAQ:PTLO) jumped 7.8% in the afternoon session after Stifel analyst Chris O'Cull upgraded the stock's rating from Hold to Buy and raised the price target from $13 to $16. The new price target implied a potential 20% upside from where shares traded before the upgrade was announced. O'Cull's optimism stemmed from management's improvement engagement amid efforts to improve traffic trends.

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What The Market Is Telling Us

Portillo’s shares are very volatile and have had 21 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 11 months ago when the stock gained 17.3% on the news that the company reported fourth-quarter results, which blew past analysts' EPS expectations. Its revenue, gross margin, and EBITDA also outperformed Wall Street's estimates during the quarter. The main driver behind the company's outperformance was better-than-expected same-store sales growth (4.4% vs estimates of 3.5%). It also opened 6 new restaurants during the quarter (12 for all of 2023) in Illinois, Texas, and Florida. Earlier in the year, the company opened some locations in Arizona. For 2024, the company estimated commodity and wage inflation to be in the mid-single digits. It sought to offset these headwinds by raising the price of certain menu items by 1.5%. Furthermore, it planned to open at least 9 new restaurants in 2024 and stated its long-term goal of 12-15% annual increases in restaurant locations. Its near-term focus will be on the Sunbelt region and areas near its hometown of Chicago. Zooming out, this was an impressive quarter that should delight shareholders.

Portillo's is up 44.1% since the beginning of the year, but at $13.36 per share, it is still trading 16% below its 52-week high of $15.90 from February 2024. Investors who bought $1,000 worth of Portillo’s shares at the IPO in October 2021 would now be looking at an investment worth $458.93.

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