Analysts At RBC Looking At The Menu Of Fast Food Stocks

Stifel's restaurant analyst Paul Westra turned bearish on the restaurant industry in late July. On Tuesday, RBC Capital Market's analyst David Palmer shared a similar, somewhat negative, sentiment on the restaurant sector, noting that industry trends have "slowed to very low growth."

According to Westra, fast food same-store sales growth at U.S. chains has proven to be "relatively stable" at around 1 percent over the past few months, but appears to have been "slightly weaker" in July. The analyst speculated that industry trends could further turn negative in the fall and winter quarters, resulting in a notable reduction in his same-store sales estimates.

Westra further noted that declining food costs have been a "boon" to restaurant-level margins, and many fast food chains reported their best gross margins since 2012. However, lower food costs are "likely a constraint" to industry same-store sales.

Westra noted that among all restaurant names under coverage, Wendys Co (NASDAQ: WEN)'s same-store sales estimate suffered the largest reduction from 3 percent to 0 percent in the third quarter and from 3 percent to negative 1 percent in the fourth quarter. As such, the analyst downgraded Wendy's stock to Sector Perform from Outperform, with a price target lowered to $11 from a previous $12.

At time of writing, Wendy'ss was down 3.08 percent on the day at $9.43.

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