Feltl Upgrades Diversified Restaurant Holdings Following 'Much Better' Than Expected Q1

In a report published Friday, Feltl and Company analyst Mark Smith upgraded shares of Diversified Restaurant Holdings, Inc (NASDAQ: BAGR) to Strong Buy from Buy with an unchanged $6.50 price target following the company's "much better" than expected first quarter results.

Smith noted that the company's first quarter same-store sales increase of 8.0 percent over a 1.2 percent comp last year was higher than the 8.9 percent he projected. Sales increased 29.4 percent from the same quarter a year ago to $39.4 million and also exceeded his estimates of $37.9 million. The company earned $0.01 per share in the quarter, which was higher than the break-even Smith previously estimated.

By segment, same-store sales increased 11.2 percent at Bagger Dave's restaurants and increased 7.6 percent at Buffalo Wild Wings (NASDAQ: BWLD) (the company operates Buffalo Wild Wings franchised restaurants in Indiana, Illinois, Michigan and Florida), marking the 17th consecutive quarter of positive same-store sales growth.

Smith said the company's restaurant-level margin of 19.0 percent was higher than his 17.5 percent estimate. He noted that the restaurant margin figure is more impressive when considering the macro-economic headwinds including labor inflation and food cost pressures in beef and chicken wings.

Management maintained its 2015 sales guidance of $148 million to $158 million, maintained its restaurant-level EBITDA guidance of $26.0 million to $28.5 million and adjusted EBITDA guidance of $16.0 million to $17.0 million. According to the analyst, the company's guidance may ultimately prove conservative although he did caution it is still early in the year and many things can change.