However, the brokerage believes there are select opportunities within the restaurant industry where multiples have contracted. The lead analyst listed four key factors for preferring the shares within the industry.
The first is a favorable forecast on SSS and the possibility of gaining market share. The second factor is the focus on attracting millennials, emphasizing fresh food offerings, technology advancements and high-quality service. The third factor is relative valuations with reasonable history, and the fourth one related to return of cash to shareholders through share buyback program and dividends, possible with strong free cash flow.
Canaccord said in its research note that, "Over all, we think the consumer is relatively strong given an improving consumer confidence and employment, robust new home sales and rising wage rates. That said, restaurant industry SSS have sequentially decelerated in Q2 vs. Q1 for all restaurant categories. As we look into the balance of '16, we estimate that SSS for casual dining will be flattish to slightly negative."
The brokerage's rating and price targets on fifteen stocks are given below:
- BJ's Restaurants, Inc. BJRI: Hold, $43 price target.
- Buffalo Wild Wings BWLD: Hold, $175 price target.
- Cheesecake Factor Inc CAKE: Hold, $54 price target.
- Chipotle Mexican Grill, Inc. CMG: Hold, $425 price target.
- Del Frisco's Restaurant Group Inc DFRG: Hold, $15 price target.
- Darden Restaurants, Inc. DRI: Hold, $74 price target.
- Brinker International, Inc. EAT: Hold, $56 price target.
- Fogo De Chao Inc FOGO: Hold, $13 price target.
- Fiest Restaurant Group Inc FRGI: Hold, $25 price target.
- McDonald's Corporation MCD: Hold, $122 price target.
- Dave & Buster's Entertainment, Inc. PLAY: Buy, $52 price target.
- Panera Bread Co PNRA: Buy, $255 price target.
- Red Robin Gourmet Burgers, Inc. RRGB: Hold, $53 price target.
- Sonic Corporation SONC: Buy, $35 price target.
- Texas Roadhouse Inc TXRH: Hold, $48 price target.
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