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The Best Fast Casual Investment Might Surprise You

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The Best Fast Casual Investment Might Surprise You
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Fast casual stocks are becoming more prevalent not just in everyday life, but in the stock market as well. There are now enough publicly-traded names to warrant its grouping as an official sub-sector of the restaurant space.

In a report published Wednesday, Maxim Group analyst Stephen Anderson initiated coverage of the restaurant sector, saying improving macroeconomic fundamentals were likely to fuel increased spending on food.

Anderson contended that the restaurant industry's sales were "more dependent on job growth than on gas prices." Improving demographic trends, along with steady-to-lower food costs, were also expected to have a positive impact on the restaurant industry fundamentals.

Pointing out that the macroeconomic environment was likely to be constructive over the next 12 months, Anderson said that same-restaurant sales were expected to average 1-2 percent for casual dining, 2-3 percent for traditional quick-service restaurants, and 3-4 percent for fast casual restaurants.

In the report Maxim Group noted that the fast casual segment had been the preferred segment among restaurant investors because of its consistent growth and the support provided by the favorable demographic and psychographic trends.

Anderson initiated coverage of three companies in the fast casual segment that had been standout performers over the past five years.

Three Plays

Chipotle Mexican Grill, Inc (NYSE: CMG) and Panera Bread Co (NASDAQ: PNRA) were both initiated with Hold ratings, with price targets of $810 and $220, respectively. Analysts' favorite stock, though?

They initiated coverage of Zoe's Kitchen Inc (NYSE: ZOES) with a Buy rating and a price target of $50.

Anderson said that Panera Bread was expected to benefit from the lower y/y grain prices since wheat accounts for 20 percent of the company's total food costs. "By our model, each $1/bushel reduction in wheat costs adds about $0.06 to EPS on an annualized basis, all else being equal," he added.

The reversal in the prices of dairy products in 2015 was expected to benefit Chipotle Mexican Grill, Panera Bread and, to a lesser extent, Zoe's Kitchen, since all three companies purchased dairy on the spot market, the report mentioned.

Latest Ratings for CMG

DateFirmActionFromTo
Nov 2016GuggenheimDowngradesNeutralSell
Oct 2016Goldman SachsMaintainsNeutral
Oct 2016Credit SuisseDowngradesOutperformNeutral

View More Analyst Ratings for CMG
View the Latest Analyst Ratings

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