Market Overview

Who To Choose In Fast Food? KeyBanc Sizes Them Up

Who To Choose In Fast Food? KeyBanc Sizes Them Up

KeyBanc initiated coverage of eight fast food restaurant stocks, four of which with a bullish stance.

The Analyst

KeyBanc Capital Markets' Eric Gonzalez initiated coverage of the following names:

  • Bojangles Inc (NASDAQ: BOJA) at Sector Weight, no price target.
  • Chipotle Mexican Grill, Inc. (NYSE: CMG) at Overweight, $500 price target.
  • Dunkin Brands Group Inc (NASDAQ: DNKN) at Sector Weight, no price target.
  • Mcdonald's Corp (NYSE: MCD) at Overweight, $185 price target.
  • Restaurant Brands International Inc (NYSE: QSR) at Overweight, $68 price target.
  • Starbucks Corporation (NASDAQ: SBUX) at Overweight, $65 price target.
  • Wendys Co (NASDAQ: WEN) at Sector Weight, no price target.
  • Yum! Brands, Inc. (NYSE: YUM) at Sector Weight, no price target.

Here are a few highlights Gonalez noted on each stock.


  • Bojangles boasts a loyal customer base and favorable reputation among consumers.
  • The company may need to invest in value platforms and technology to maintain current momentum.
  • Shares are trading at 19 times 2020 estimated EPS, which implies a fair valuation.

Chipotle Mexican Grill

  • CEO Brian Niccol is leading the restaurant chain in the right direction.
  • New initiatives include modern marketing initiatives to become more culturally relevant while taking a more "rigorous" approach to new ideas.
  • The $500 price target implies a 32.5 times multiple on estimated 2020 EPS.

Dunkin' Brands

  • 2018 is likely to be a year of "modest" growth ahead of accelerating growth in the years to come.
  • The coffee chain should improve same store-sales growth from 1 percent today to 3 percent in 2020.
  • The stock's 4.5-percent free cash flow yield on 2020 estimates should keep investors on the sidelines.


  • McDonald's turnaround progress remains in the early stages.
  • The company is showing signs of success in retaining, regaining and converting consumers into loyal customers.
  • The $185 price target is based on a 4.4-percent 2020 estimated target free cash flow yield which compares favorably to peers.

Restaurant Brands

  • Restaurant Brands is an underappreciated story highlighted by a 6-percent unit quarter and high single-digit system sales growth.
  • The company's 3-percent dividend yield should expand with growing earnings.
  • A $68 price target is based on a 5.1-percent free cash flow yield on 2020 estimates.


  • After three years of underperformance versus the S&P 500 index multiple initiatives should spur growth.
  • The stock should move higher amid lower Street expectations.
  • A $65 price target is based on a 21 times multiple on 2020 estimated EPS.


  • Wendys is not only a leaner company, but more modern with investments in digital and a roll out of delivery options.
  • The company is able to keep pace with changing consumer demands.
  • The 6-percent free cash flow valuation yield on 2019 estimates implies investors need signs of accelerated system-wide sales growth before turning bullish.

Yum! Brands

  • After a "noisy" 2018, the company should see an acceleration in global growth in the coming years.
  • Signs of acceleration or a pullback in valuation are needed before being buyers of the stock.
  • The stock's free cash flow yield on 2020 estimates of 4.5 percent is near fair value.

Related Link:

KeyBanc: Starbucks Is A Buy Despite Recent Weakness

Stifel's Deep Dive Into The Restaurant Sector


Related Articles (CMG + BOJA)

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