Oppenheimer Sees Some Attractive Opportunities In These Restaurant Stocks

• Restaurant stocks are down 5 percent entering into 2016, versus a 0.7 percent decline in the S&P.
• Oppenheimer’s Brian Bittner named the top picks for 2016, and maintained Outperform ratings on some stocks.
• The sector offers some attractive investment opportunities, Bittner stated.

“We believe a rock-solid consumer outlook, lower food commodities and more intriguing valuations have created some attractive opportunities,” analyst Brian Bittner wrote.

Bittner named the top picks for 2016 as:

Buffalo Wild Wings

The price target for Buffalo Wild Wings BWLD is at $200.

“Our powerful earnings upside view paired with a discounted valuation could prove a high-return combo,” the analyst commented.

Bittner believes that the recent sales disappointment could prove to be transitory. The Street’s earnings and margin expectations for 2016 appear conservative and the market seems to be underappreciating the company’s new FCF generation or EPS upside opportunity.

Yum! Brands

The price target for Yum! Brands, Inc. YUM is at $88.

Investors could shift their focus to the company’s underappreciated separation, which could be a “unique upside,” Bittner said.

“We believe 2016 will mark a change in investor sentiment as focus shifts away from an obsession over China SSS and towards the post-split opportunity, which remains overlooked, under-appreciated and highly accretive,” the Oppenheimer report stated.

Jack in the Box

The price target for Jack in the Box Inc. JACK is at $95.

The company’s shares were down 5 percent in 2015, despite an upward revision of 11 percent to the 2016 estimates. “Investors got trapped in a transitory momentum trade.” The recent weakness represents an attractive entry point of “overlooked fundamental strength and a promising late-May analyst event,” Bittner mentioned.

Other Outperform-Rated Stocks

• Darden Restaurants, Inc. DRI appears well positioned for “positive EPS revisions, is accelerating cash returns and remains reasonably valued,” the analyst stated. While the company’s fundamentals are robust, Olive Garden’s momentum could sustain outperformance.
• Starbucks Corporation SBUX: Management has been able to begin 2016 comp guidance above the normal “mid-single-digit” range, backed by the successful roll-out of mobile order/pay.

Although an increase in employee and technology investments could exert pressure on EPS, the company should be able to generate 20 percent EPS growth with ease. “Despite its lofty multiple, SBUX has unprecedented sales and brand momentum,” Bittner mentioned.

• Sonic Corporation SONC: The company’s business continues to benefit from a “multi-year self-help cycle built on strategies to drive SSS, expand margins and deliver 14-20% EPS growth (16-20% this year),” the reprot stated.

AUV’s have significant capacity to expand, backed by better marketing, improved food pipeline and a digital ecosystem that has not yet been fully unleashed.

• Kona Grill Inc KONA: the company has small market-cap and thin trading volume. These result in the stock being “overlooked by many market participants,” Bittner said. He added, however, that Kona Grill offers “unique optionality as unit expansion rides in + 20% gear with proven portability and 4x-5x expansion potential.”
• Bob Evans Farms Inc BOBE: Although comps could remain negative, EPS estimates appear safe and “have a non-modeled cushion with sow prices now falling to the low-$20’s from $50 in mid-November.”