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Who To Choose In Fast Food? KeyBanc Sizes Them Up

Jayson Derrick

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

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