Why Canaccord Only Has An Appetite For These 4 Restaurant Stocks
While there are concerns surrounding the restaurant industry, given the recent top-line issues and ongoing elevated labor costs, multiples contraction had presented some opportunities, Canaccord Genuity’s Lynne Collier said in a report. He initiated coverage of four companies with Buy ratings.
Analyst Collier recommended companies that have the following key factors:
- Positive SSS outlook and potential for market share gains
- Attraction to on-trend millennials
- Reasonable historical and relative valuations
- Strong FCF and return of cash to shareholders
Collier cited the reasons for the Buy rating on Darden Restaurants, Inc. (NYSE: DRI) as:
- The company’s strong, operations-focused management team
- Its portfolio of brands offering diversification and strong AUVs
- Market share gains expected to continue, driven by menu innovation, Olive Garden remodels, table-top tablets and focus on off-premise
- Solid FCF allows the company to return cash to shareholders, via $100-$200 million in annual share repurchases and continuous dividend hikes
The price target is at $74 for Darden Restaurants.
Dave & Buster's
The analyst mentioned the following reasons for being constructive on Dave & Buster's Entertainment, Inc. (NASDAQ: PLAY):
- Proven management with a strong track record, which had achieved a 5-year EBITDA CAGR of ~21 percent
- Portable concept is only about 40 percent through its growth cycle
- Differentiated brand with almost no national competition
- Best-in-class unit economics with AUVs of ~$12 million and cash-on-cash returns approaching 50 percent
- SSS growth consistently outpacing industry benchmarks
- Attractive valuation versus high-growth peers
The price target is at $52 for Dave & Buster's.
The Canaccord Genuity report said that the positive investment thesis on Panera Bread Co (NASDAQ: PNRA) includes:
- SSS outperformance driven by 2.0 conversions, menu innovation, catering and delivery
- The company having been on the forefront of technology that improves the guest experience, which is expected to “further distance the brand in the future vs. competitors”
- Return to double-digit EPS growth in 2017 and outsized earnings growth likely in 2018/2019, with the company having completed most of the investment
The price target is at $255 for Panera Bread.
Collier enumerated the following reasons for the Buy rating on Sonic Corporation (NASDAQ: SONC):
- Market share gains likely to continue
- EPS growth expected to remain consistent and relatively strong
- FCF yield of ~6 percent is attractive and would allow the company to repurchase shares and hike dividend
- Unit growth is expected to accelerate over the next 2-3 years
- Compelling valuation versus franchise peers
The price target is at $35 for Sonic.
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Latest Ratings for DRI
|Dec 2016||Deutsche Bank||Downgrades||Buy||Hold|
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