LOCO WACC - Weighted Average Cost of Capital
The WACC of El Pollo Loco Holdings Inc (LOCO) is 8.0%.
| Range | Selected | |
| Cost of equity | 7.5% - 10.6% | 9.05% |
| Tax rate | 26.5% - 26.9% | 26.7% |
| Cost of debt | 4.8% - 4.8% | 4.8% |
| WACC | 6.7% - 9.3% | 8.0% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.79 | 1.02 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.5% | 10.6% |
| Tax rate | 26.5% | 26.9% |
| Debt/Equity ratio | 0.23 | 0.23 |
| Cost of debt | 4.8% | 4.8% |
| After-tax WACC | 6.7% | 9.3% |
| Selected WACC | 8.0% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| LOCO | El Pollo Loco Holdings Inc | 0.23 | 1.12 | 0.96 |
| DENN | Denny's Corp | 1.34 | 0.98 | 0.49 |
| FRGI | Fiesta Restaurant Group Inc | 0 | 0.61 | 0.61 |
| LUB | Luby's Inc | 0.31 | 1.18 | 0.96 |
| MHGU | Meritage Hospitality Group Inc | 1.74 | -0.05 | -0.02 |
| MTY.TO | MTY Food Group Inc | 1.33 | 1.07 | 0.54 |
| NDLS | Noodles & Co | 2.6 | 0.81 | 0.28 |
| PBPB | Potbelly Corp | 0.01 | 1.6 | 1.59 |
| RECP.TO | Recipe Unlimited Corp | 0.82 | 1.83 | 1.15 |
| RUTH | Ruth's Hospitality Group Inc | 0.04 | 0.86 | 0.83 |
| Low | High | |
| Unlevered beta | 0.58 | 0.88 |
| Relevered beta | 0.69 | 1.03 |
| Adjusted relevered beta | 0.79 | 1.02 |
LOCO's CAPM model and how its cost of Equity is calculated
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for LOCO:
cost_of_equity (9.05%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.79) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.