Healthier Menus And Digital Ordering Will Expand Market Reach

Key Takeaways

• Brand relaunch, product innovation, and digital channel expansion are expected to drive greater customer traffic, loyalty, and sustained revenue growth beyond current projections.
  
• Operational efficiencies, supply chain optimization, and demographic tailwinds position the company for significantly enhanced profitability and outsized long-term earnings expansion.
  
• Heavy reliance on chicken, slow tech adoption, rising labor costs, and geographic concentration expose the company to significant operational and market vulnerability.

Catalysts

Through its subsidiary, El Pollo Loco, Inc., develops, franchises, licenses, and operates quick-service restaurants under the El Pollo Loco name.

• Analyst consensus sees new product launches and the brand relaunch as growth drivers, but ongoing early success and consumer excitement suggest El Pollo Loco's innovation pipeline and brand modernization could trigger a dramatic surge in new and repeat customer traffic, translating into outsized revenue gains and accelerating same-store sales growth faster than currently expected.
  
• While analysts broadly expect margin improvement from cost efficiencies, the scale of supply chain optimization, automation investments, and new build prototypes may drive a structural step-change in net margins, enabling substantial long-term earnings expansion as the unit model becomes meaningfully more profitable.
  
• El Pollo Loco is uniquely positioned to capitalize on surging nationwide demand for healthier, transparently-sourced menu options, and its strong focus on grill-based cooking and fresh ingredients can unlock a widening share of health
• and value-conscious diners, driving both higher check averages and greater customer loyalty.
  
• Enhanced digital channels and a broadened portable menu are set to accelerate off-premise sales and drive-thru volumes, allowing El Pollo Loco to capture disproportionate share from evolving consumer habits and supporting sustained revenue and margin improvement over the long term.
  
• Demographic growth among Hispanic and Latino populations, along with expansion into new high-growth markets across the U.S., positions El Pollo Loco for an amplified addressable market and geographic diversification, fueling multi-year system-wide revenue and earnings growth well above consensus expectations.

El Pollo Loco Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on El Pollo Loco Holdings compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming El Pollo Loco Holdings's revenue will grow by 3.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 5.3% today to 5.1% in 3 years time.
• The bullish analysts expect earnings to reach $26.8 million (and earnings per share of $0.93) by about July 2028, up from $25.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 26.9x on those 2028 earnings, up from 12.9x today. This future PE is greater than the current PE for the US Hospitality industry at 24.5x.
• Analysts expect the number of shares outstanding to grow by 0.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.11%, as per the Simply Wall St company report.

El Pollo Loco Holdings Future Earnings Per Share Growth

Risks

• A significant portion of El Pollo Loco's menu and brand identity revolves around chicken, which exposes the company to secular risks from shifting consumer preferences toward plant-based diets and alternative proteins, potentially leading to lower long-term sales and earnings.
  
• Persistently rising labor costs, especially due to wage increases in California and potential further regulatory action, are eroding restaurant-level margins and net income, evident from the company's reported 12% wage inflation in Q1 and ongoing guidance for elevated labor expense for the rest of 2025.
  
• El Pollo Loco's heavy geographic concentration in California and the Southwest increases vulnerability to regional economic downturns and minimum wage legislation, resulting in revenue volatility and limited opportunities for sustainable national growth over time.
  
• Despite some progress, the company has been slower to adopt technology compared to larger competitors, as noted in the discussion on kiosk rollouts and digital investments, which threatens to weaken customer retention and same-store sales growth, ultimately weighing on revenue and profitability.
  
• The restaurant industry is facing commodity cost inflation, especially for poultry, and while the company reported modest increases for now, ongoing and volatile increases in food and packaging costs combined with intensified competition from better-capitalized rivals may compress margins and constrain future earnings growth.

Valuation

• The assumed bullish price target for El Pollo Loco Holdings is $18.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of El Pollo Loco Holdings's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $18.0, and the most bearish reporting a price target of just $11.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $526.5 million, earnings will come to $26.8 million, and it would be trading on a PE ratio of 26.9x, assuming you use a discount rate of 10.1%.
• Given the current share price of $10.82, the bullish analyst price target of $18.0 is 39.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.