9 Restaurant Stocks Baird Analysts Hunger For
David Tarantino of Baird reviewed the restaurant sector in a research report on Tuesday and came away with the following conclusions.
1. Initial data from the analyst's private chain survey is pointing to August comps near 1.5–2.0 percent, which is below July's 2.5–3.0 percent level as well as the second quarter's 2.4 percent. The slowdown is partly due to the negative impact from the Summer Olympics and a more difficult multi-year comparison.
2. Better trends might be needed in September in order for companies to achieve their calendar third-quarter estimates.
3. Underlying demand "seems softer" than expected, even when excluding the impact from the Olympics in August. The analysts suggested that non-economic factors, such as the uncertain political environment and a shift away from restaurant visits in favor of grocery stores have been "hampering demand" at restaurants.
4. Investors should favor restaurants that can "perform well if the demand environment stays sluggish."
Tarantino further noted that he remains "cautiously optimistic" on the restaurant sector over the next 12 months. Nevertheless, the short-term risk profile on the group "seems somewhat elevated" and investors should "selective" in what names they buy.
Specifically, the following Outperform-rated companies are all positioned to "drive healthy or improved results" in the upcoming periods and as such the risk to reward profile is "appealing."
- Panera Bread Co (NASDAQ: PNRA).
- Starbucks Corporation (NASDAQ: SBUX).
- Jack in the Box Inc. (NASDAQ: JACK).
- McDonald's Corporation (NYSE: MCD).
- Wingstop Inc (NASDAQ: WING).
- Dunkin Brands Group Inc (NASDAQ: DNKN).
- Habit Restaurants Inc (NASDAQ: HABT).
- Zoe's Kitchen Inc (NYSE: ZOES).
- Buffalo Wild Wings (NASDAQ: BWLD).
The analyst remains Neutral on the following names due to valuations and/or concerns about company-specific factors.
- BJ's Restaurants, Inc. (NASDAQ: BJRI).
- Cheesecake Factory Inc (NASDAQ: CAKE).
- Chuy's Holdings Inc (NASDAQ: CHUY).
- Chipotle Mexican Grill, Inc. (NYSE: CMG).
- Darden Restaurants, Inc. (NYSE: DRI).
- Papa Murphy's Holdings Inc (NASDAQ: FRSH).
- El Pollo LoCo Holdings Inc (NASDAQ: LOCO).
- Noodles & Co (NASDAQ: NDLS).
- Potbelly Corp (NASDAQ: PBPB).
- Texas Roadhouse Inc (NASDAQ: TXRH).
- Yum! Brands, Inc. (NYSE: YUM).
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