Sandwich restaurant chain Jersey Mike’s is set to go public on Thursday at $23 per share, and it already has the endorsement of one Wall Street firm. Melius Research became the first investment bank to initiate research coverage of the New Jersey-based company with a buy rating and $30 price target, suggesting 30% potential upside from the IPO price. Analyst Jacob Aiken-Phillips made the case for buying the stock in a Thursday note before Jersey Mike’s began trading on the New York Stock Exchange. Morgan Stanley, Jefferies, and J.P. Morgan led the initial public offering. “Jersey Mike’s is the only scaled premium operator in a category whose dominant incumbent is closing roughly 700 restaurants a year,” he wrote in the note, referring to store closures by Subway . “This IPO is the first chance to buy a decade of unit-driven compounding” in the category. Melius said few franchisors of a similar quality have gone public since Wingstop in 2015, noting that Jersey Mike’s CEO Charlie Morrison also led Wingstop during that period. Aiken-Phillips praised the rest of the company’s leadership team, saying they have deep experience across other scaled franchisors. Jersey Mike’s generates more than 40% of Subway’s sales in the U.S. with only 15% as many stores, Melius said in the 18-page report, and the chain has a chance to grab more market share as Subway continues to struggle. “Subway’s decline is the engine of that opportunity, and we would frame the resulting share shift as the sandwich category’s version of Domino ‘s decade of gains against Pizza Hut, Papa John’s and others,” Aiken-Phillips said. “Jersey Mike’s is the only scaled premium player positioned to take it, both downmarket against the value tier and across a fragmented premium tier where no competitor approaches its brand reach or franchisee returns.” Jersey Mike’s sold 43.5 million shares in the IPO, raising $1 billion. Proceeds will be used to repay debt and for general corporate purposes.
