The Life Of A Taco Analyst

• The Mexican restaurant segment has shown relative strength recently
• Taco Bell continues to outshine its competition
• Chipotle and Del Taco are Citi’s top stock picks in the space

In a new report, Citi Research Group’s Gregory Badishkanian puts his taco analyst sombrero on to take a look at the world of Mexican restaurants. The Mexican restaurant segment has outperformed other restaurant segments in recent months, and Badishkanian discusses whether or not stocks have more room to run and which names are Citi’s top picks.

The fiesta continues
Despite the recent outperformance, Badishkanian believes that Mexican restaurants will continue to demonstrate positive trends in the future. Although there are growing concerns over minimum wage growth and increasing employee turnover, Citi believes that the underlying strength of the business will overcome any potential labor headwinds. “We generally have a favorable outlook and would expect to see solid same-store sales performance from most concepts going forward,” Badishkanian explains.

The top burrito
Yum Brands Inc YUM's Taco Bell chain continues to be the gold standard when it comes to the business of Mexican food. Citi maintains its positive outlook for Taco Bell for the rest of the year and sees a strong possibility that the chain could even outshine its 6.0 percent Q2 revenue growth rate in Q3. “Additionally, breakfast continues to help sales (7% of mix and the new biscuit taco has been better received than the waffle taco) and new products/promotions continue to resonate well across day-parts,” Badishkanian adds.

How to play it
Citi currently has Buy ratings on Chipotle Mexican Grill Inc CMG and Del Taco Restaurants Inc TACO. Despite the favorable outlook for Taco Bell, Citi only has a Neutral rating on Yum Brands.

Disclosure: the author holds no position in the stocks mentioned.