Goldman Sachs More Cautious On Restaurants, Cuts Sector Rating (SBUX) (YUM)

Goldman Sachs has turned less sanguine about the Restaurant group and downgraded the sector Thursday from Attractive to Neutral on uncertain demand and full valuations. With the call, the firm downgraded ratings on Starbucks (Nasdaq: SBUX) and Yum! Brands (NYSE: YUM).

The firm said it's second-quarter survey of 2,000 US consumers indicates a decreased intent to dine out for the first time since mid-2008. In addition, there was a large spike in the number of people who classified restaurants as "less affordable."

Specifically on Yum! Brands, the firm cut the stock from Neutral to Sell citing risk to profits with China's GDP showing signs of slowing and food and labors costs still rising. On Starbucks, the firm downgraded the stock from Conviction Buy to Neutral on valuation and less upside to EPS as consensus estimates have moved up.

Goldman's top picks in the sector are Chipotle Mexican Grill, Inc. (NYSE: CMG) and Tim Hortons Inc. (NYSE: THI), where the firm sees same-store sales and EPS upside.

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