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The US economy is likely to slide into recession within the next three to nine months, Stifel’s Paul Westra said in a report. He changed his view on the monolithic Restaurant Group to “Bearish” from “Bullish,” and downgraded the rating on El Pollo LoCo Holdings Inc (NASDAQ: LOCO) from Buy to Hold.
Analyst Paul Westra mentioned that restaurant stocks were “monolithic,” since about 75 percent of the stocks tend to outperform or underperform together throughout a business cycle.
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Reasons For Turning Bearish
Westra mentioned three reasons:
- In 2Q16, there was a simultaneous comp deceleration across every industry sector, pointing towards a prolonged dining-out slowdown.
- Historically, Restaurants have suffered more than two years of margin-contracting Relative Pricing Power at the beginning of dining-out declines, “as discounting quickly ratchets-up in the face of declining sales.”
- In the year preceding the last three US recessions, on average Restaurant stocks have lost 23 percent, versus 10 percent in the S&P 500.
Call On LOCO
“We have grown extremely cautious on the restaurant industry as a whole, and today we downgrade LOCO from Buy to Hold mainly to reflect our bearish Macro Sentiment (w/ 1Q16/2Q16 industry comps of just +1.5%/+0.7% (or below key +2% threshold)); and (2) limited earnings/comp upside opportunity ahead of likely US recession,” the analyst wrote.
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.