Restaurant sales rebounded with vigor in August after slumping from March through July, according to Bank of America analysts.
So how do they rate specific restaurant stocks?
They assign a buy rating to:
· Chipotle Mexican Grill (CMG);
· Darden Restaurants (DRI);
· Domino's Pizza (DPZ);
· Dutch Bros (BROS);
· First Watch (FWRG) ;
· Krispy Kreme (DNUT);
· Portillo's (PTLO) ;
· Starbucks (SBUX);
· Texas Roadhouse (TXRH).
The analysts assign a neutral rating to:
· McDonald’s (MCD);
· Sweetgreen (SG);
· Yum Brands (YUM).
They assign an underperform rating to:
· Brinker International (EAT);
· Cracker Barrel (CBRL);
· Restaurant Brands International (QSR);
· Wendy’s (WEN).
Here are the analysts’ takes on:
· Chipotle: “Our $1,743 price objective is based on earnings power,” they wrote in a commentary. The stock recently traded at $1,558. “At the current unit growth rate, we think Chipotle should be able to reach its targeted 7,000 domestic store count in roughly 10 years.”
· Domino’s: “Given that Domino's returns and growth have consistently outpaced those of the broader market, we believe its historical range remains relevant,” the analysts said. “We expect the multiple to be stable.” Their price target is $448. Domino’s recently traded at $333.
· Starbucks: The analysts estimate a price-earnings ratio of 27 based on their earnings estimate for fiscal 2023. “The multiple is justified given increased investments associated with labor, operations, and unit development in 2023, as well as a return to a higher long-term growth algorithm,” they said.
· McDonald’s: The analysts have a $265 price objective, compared to the recent quote of $247. An upside risk to that forecast: “McDonald's could sustain elevated comparisons for longer than expected based on company initiatives or industry dynamics.” A downside risk: “Margins could compress more than expected if McDonald's fails to pass through inflation in food and labor costs.”
· Yum: The analysts have a $132 price objective, compared to the recent quote of $109. An upside risk to that forecast: faster than expected recovery from covid restrictions in China. A downside risk: “Continued soft sales trends in the KFC and Pizza Hut brands.”
· Cracker Barrel: The analysts have a $94 price objective, compared to the recent quote of $97. An upside risk to that forecast: “higher-than-expected same-store sales growth from digital/off-premise sales initiatives.” A downside risk: “higher-than-expected wage inflation.”
· Restaurant Brands (which owns Burger King and Popeyes): The analysts have a price objective of $53, compared to the recent quote of $55. An upside risk to that forecast: better than expected results on sales and market share due to investments in stores. A downside risk: a “continued lag in topline growth relative to competitors.”
