Market Overview

KeyBanc Initiates Coverage on Restaurant Stocks

KeyBanc Capital Markets initiated coverage on twelve restaurant stocks on Friday. The analysts noted that while it is difficult to determine the direction of the macro economy, restaurant stocks are positioned for either a recovery or another recession. They noted that going into 2008, the industry was poorly positioned, in large part because of an oversupply of stores. In recent years, however, the industry has shifted away from focusing primarily on opening stores to strategies to improve their menu, service, atmosphere, and marketing programs.

KeyBanc added that, "restaurants are investing in technologies to increase operational efficiencies and upgrade product quality, while broadening menu selections. The inference that can be drawn from this shift is that the industry will not be caught as flat-footed in another cyclical downturn. Five years ago, the industry mentality was 'build it and they will come,' but today successful restaurant companies are driven by a guest-centric planning process."

If the macro picture improves, these changes in focus, which have ostensibly improved efficiencies and branding, should provide additional leverage in another growth phase. Since the financial crisis, the number of restaurants has fallen by 10 percent and there are roughly 213 households per restaurant compared to 194 households per restaurant in 2008. Given these metrics, there could be significant room for expansion if the macro landscape were to improve dramatically.

KeyBanc's favorite idea in the space is Brinker International (NYSE: EAT) for investors seeking yield. The analysts said that their favorite growth idea was Panera Bread (NASDAQ: PNRA). They added that they feel comfortable with EPS visibility for all of their Buy rated stocks in the near-term, particularly Papa John's (NASDAQ: PZZA), Cracker Barrel Old Country Store (NASDAQ: CBRL) and Jack in the Box (NASDAQ: JACK). Below, Benzinga provides more color from the report on a few specific stocks. The ratings for all of the stocks covered in the report can be found at the end of the article.

KeyBanc is positive on shares of Brinker International (NYSE: EAT). They initiated the stock at "Buy" with a $40 price target. The analysts wrote, “Chili's is well-positioned to grow EPS in the 17-20% range for the next few years fueled by at least 3% SRS gains, 1-2% unit growth, 150 bps of margin expansion during the next two years, and 5-7% of annual share count reduction. The Street's 15% EPS growth projection for the next few years will likely prove conservative as SRS gains, coupled with cost improvements, deliver better than expected profit growth, which in turn provides greater capacity for share repurchases.” During Friday's trading session, EAT shares have climbed 1.13% to $32.13.

KeyBanc analysts started Cracker Barrel at "Buy" with a $75.00 price target. They wrote, “We believe estimates and valuation underestimate Cracker Barrel's ability to drive upside to its 12-15% EPS growth target during the next few years. Visible top-line drivers, tight cost controls and significant capital deployment opportunities should lead to results ahead of the Street's $4.64 EPS estimate for FY13. Moreover, nervous sentiment toward the activist shareholder, Biglari Holdings, creates a buying opportunity.” During Friday's trading session, CBRL shares have added 0.90% to $63.08.

The firm initiated Darden Restaurants (NYSE: DRI) at "Hold" rating. Darden recently purchased the Yard House for $585 million in cash. The analysts wrote, “Same-restaurant sales (SRS) improving at Olive Garden is unlikely before 2H13, or when several new menu and advertising changes are implemented. Moreover, we believe near-term EPS estimates may be too aggressive. However, the stock price downside risk is limited, in our opinion, as easing commodity prices and unit growth should contribute meaningfully to EPS growth in FY13, and investors can receive a 4% annual dividend yield.” Darden shares have fallen 0.26% on Friday.

KeyBanc Restaurant Initiations:

  • BJ Restaurants (NASDAQ: BJRI), Hold.
  • Bob Evans Farms (NASDAQ: BOBE), Hold.
  • Bravo Brio Restaurant Group (NASDAQ: BBRG), Hold.
  • Brinker International (NYSE: EAT), Buy.
  • Buffalo Wild Wings, Inc. (NASDAQ: BWLD), Hold.
  • Cracker Barrel Old Country Store (NASDAQ: CBRL), Buy.
  • Darden Restaurants (NYSE: DRI), Hold.
  • Jack in the Box (NASDAQ: JACK), Buy.
  • Panera Bread Company (NASDAQ: PNRA), Buy.
  • Papa John's International (NASDAQ: PZZA), Buy.
  • Red Robin Gourmet Burgers (NASDAQ: RRGB), Hold.
  • Texas Roadhouse (NASDAQ: TXRH), Buy.
  • Tim Hortons (NYSE: THI), Hold.
  • The Wendy's Company (NYSE: WEN), Hold.

Posted-In: Biglari Holdings KeyBanc Capital MarketsAnalyst Color Initiation Intraday Update Analyst Ratings Movers Best of Benzinga

 

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