KeyBanc initiated coverage of eight fast food restaurant stocks, four of which with a bullish stance.
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.
- 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 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.
- 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.
Stifel's Deep Dive Into The Restaurant Sector
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