The Habit Restaurants, Inc. HABT announced the offering of 5.75 million shares of common stock, worth $187.2 million, through selling shareholders. In response to the news, shares dipped 3% in after-market trading session. Habit Restaurants, which made an Initial Public Offering (IPO) and began trading in Nov 2014, is a controlled company.
Nasdaq currently deems a company as a “controlled company” if more than 50% of the voting power for the election of directors is held by an individual, group or another company. In this case, KarpReilly, LLC – a Connecticut-based private investment firm – owns around 35.9% of Habit Restaurants’ outstanding Class A common stock and 64.4% of the outstanding Class B common stock, which translates to 54.6% voting power.
However, with the aforementioned offering, the restaurateur will cease to be a controlled company, under the corporate governance rules laid down by Nasdaq.
In our view, the dip in share price reflects investors’ concern that the company will have to bear the expenses, other than underwriting discounts and commissions, related with the sale of shares by shareholders. However, the company will not receive any proceeds from the sale.
The company announced its first earnings results after issuing an IPO on Mar 11, wherein both earnings and revenues beat the Zacks Consensus Estimate. Despite the strong results, Habit Restaurants expected comps to increase 2.5% to 3% in 2015, far lower than comps growth of 10.7% in 2014. In the first half of 2015, the company expects comps to grow at a level higher than the fiscal-year average; indicating a slowdown in the second half.
Habit Restaurants currently carries a Zacks Rank #2 (Buy). Other well-ranked stocks in the restaurant sector include Dave & Buster's Entertainment, Inc. PLAY, Cracker Barrel Old Country Store, Inc. CBRL and BJ's Restaurants, Inc. BJRI). All these stocks sport a Zacks Rank #1 (Strong Buy).
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