Ben Claremon presented his in-depth investment thesis on Carrols Restaurant Group (TAST) at Wide-Moat Investing Summit 2015.

Carrols Restaurant Group is the largest Burger King franchisee in the U.S. The company has a unique relationship with Burger King and the management team at investment firm 3G Capital. There are 2 Burger King employees on Carrols’ Board, Burger King corporation owns 21% of the stock, and Carrols has a right of first refusal option that provides the company a unique opportunity to buy any Burger King franchise within a specified territory. The company has the goal of owning 1000 stores—as compared to 663 as of the end of Q1 2015—through a disciplined process in which Carrols pays a low cash flow multiple and then improves the acquires stores’ margins by implementing best practices. While the stock may look a little levered currently and may appear to not generate much free cash flow, when required remodels are complete and the recent acquisitions start to contribute, Carrols will generate substantial free cash flow and EBITDA. From a $10.50 price today ($365 million market cap), we think the stock is worth in the mid-teens but that number could be much higher depending on how fast the company can get to 1000 stores.

About the instructor:

Ben Claremon joined Cove Street in July 2011 as a research analyst after graduating with an MBA from the UCLA Anderson School of Management. Previously he worked as an equity analyst on both the long and the short side for hedge funds Blue Ram Capital and Right Wall Capital in New York, and interned at West Coast Asset Management in Santa Barbara. His background includes a B.S. in Economics from the University of Pennsylvania’s Wharton School, followed by four years with a family commercial real estate finance and management business. Ben is also the proprietor of the value investing blog, The Inoculated Investor.

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