Citi, the American multinational investment bank, has reportedly commenced coverage of Collins Foods (ASX:CKF), one of Australia’s fast-food companies.

The bank has designated a ‘Buy’ rating for the company, with a forecasted price target of A$12.80 for each share.

Citi approximates the earnings before interest, tax, depreciation, and amortisation of Collins Foods to nearly duplicate, equating to around A$407 million by fiscal year 31.

This estimate is built upon the prospective expansion of KFC outlets in the Netherlands and Australia.

The financial services company anticipates the chain of KFC stores in Europe under Collins Foods to more than double in size by FY31 as the branch penetration is relatively low compared to other leading fast-food chains on the continent.

Citi predicts that the global strength of the KFC brand will enhance sales for all the company amidst certain short-term risks, including the impact of competing brands like Taco Bell.

On the flip side, Citi highlights potential near-term challenges for FY24 EBITDA in terms of cost pressures brought on by food and labour, which could compel Collins Foods to amplify menu prices.

This may result in a slowdown in comparable store sales growth.

Currently, four out of nine analysts rate the stock ‘buy’ or higher, while five opt for ‘hold’ and none have marked it ‘sell’ or lower.

The median price target amongst them is A$10.10.

This year itself, as of the latest closing, the stock has seen a surge of approximately 40.8%.

Collins Foods is an Australian company managing several fast-food franchises including KFC and Taco Bell.