Zacks Begins Coverage of Nathan’s Famous With Underperform Rating

Zacks Investment Research recently initiated coverage of Nathan’s Famous, Inc. (NATH), assigning an “Underperform” recommendation to the company’s shares. This bearish stance reflects significant concerns over the company’s recent financial performance and operational challenges.

Nathan’s Famous, based in Jericho, NY, markets its brand through various channels, including company-owned and franchised restaurants, a product licensing program, and a Branded Product Program. NATH’s products are sold in 79,000 locations, including supermarkets, mass merchandisers, club stores, and various foodservice venues across the United States and internationally.

The company is contending with rising commodity costs, particularly beef and beef trimmings, which have significantly impacted margins. In fiscal 2024, the average cost of hot dogs increased by 10% compared to the previous year, making it challenging for the company to pass these costs onto consumers without dampening demand.

The research report highlights several key factors that could hinder Nathan’s Famous’ future growth. These include its reliance on its licensing agreement with Smithfield Foods for manufacturing and distribution, introducing dependency risk, and regulatory changes, such as the increase in the minimum hourly wage in New York City, which has raised operational costs. Additionally, NATH’s high debt levels, including the 6.625% Senior Secured Notes due in 2025, also strain cash flow and financial flexibility.

However, potential investors should consider certain positives outlined in the report. Nathan’s Famous benefits from strong brand recognition and a resilient multi-channel business model, which provides high-margin income and market diversification. The company’s reputation for quality and taste continues to attract loyal customers. NATH’s total revenues for fiscal 2024 were $138.6 million, up 5.9% from the previous year, reflecting effective operational management and a robust business model.

Nathan’s Famous’ stock has significantly underperformed its industry peers and the broader market over the past year. Its current valuation multiples indicate that NATH may be undervalued, but its ongoing issues, such as rising commodity costs and market saturation, are likely contributing to this discounted valuation.

For a comprehensive analysis of Nathan’s Famous’ financial health, strategic initiatives, and market positioning, you are encouraged to view the full Zacks research report. This in-depth report provides a detailed discussion of the company’s operational strategies, financial performance, and the potential risks and opportunities that lie ahead.