Restaurant Stocks in Focus as Beef Prices Soar (TXRH) (RUTH) (BLMN) (MCD)
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Price: $276.75 -0.05%
Rating Summary:
28 Buy, 19 Hold, 1 Sell
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Today's Overall Ratings:
Up: 13 | Down: 11 | New: 14
Rating Summary:
28 Buy, 19 Hold, 1 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 13 | Down: 11 | New: 14
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In a research note Friday, Deutsche Bank raised concern about the price of beef and implication for restaurant stocks. Ground beef prices are up 11% year-to-date.
Affects stocks include McDonald's Corp (NYSE: MCD), Bloomin' Brands, Inc. (Nasdaq: BLMN), Texas Roadhouse, Inc. (Nasdaq: TXRH), The Wendy's Company (Nasdaq: WEN), Del Frisco's Restaurant Group, Inc. (Nasdaq: DFRG), Chipotle Mexican Grill, Inc. (NYSE: CMG), Ruth's Hospitality Group Inc. (Nasdaq: RUTH), Yum! Brands, Inc. (NYSE: YUM), and Darden Restaurants, Inc. (NYSE: DRI).
"We believe most QSR chains had been planning for beef prices to be up in the low- to mid single-digit range in 2014. "Choice" beef, which is the primary product used at casual dining steakhouses, is up ~15% YTD in 2014. This brings the Y/Y pricing to ~+23% currently. We believe most chains (such as TXRH, DRI, and BLMN) had been planning for steak prices to be up in the mid- to high single-digit range in 2014. The "prime" beef prices that we track (used in upscale steakhouse) have not moved in tandem with the other cuts thus far this yr. For example, prime beef prices are DOWN 8% YTD and up 4-5% Y/Y," said analyst Jason West.
"For the cos. under our coverage with material beef exposure, each 5% move in beef prices impacts earnings by ~4-5%, on avg. (all else being equal). The cos. with the highest earnings exposure to beef prices incl: TXRH, RUTH and BLMN (~6-8% EBIT impact for each 5% move in beef prices). Lowest exposure = YUM, MCD, CMG (~1% EBIT impact for each 5% move in beef)," he added.
"This means, that if a company had been budgeting for ~5% beef infl., but infl. ends up at ~10%, then earnings could be hit by ~8% for cos. with higher beef exposure. We see TXRH at greatest risk here given high sensitivity to beef prices (~42% of COGS), the fact that TXRH has recently taken a menu price increase that was predicated on lower beef infl., and given limited cost-cutting opportunities in other parts of the P&L. That said, wholesale pricing trends do not always tie directly to company costs due to local purchasing arrangements, prior year contract prices, etc," he said.
For an analyst ratings summary and ratings history on McDonald's click here. For more ratings news on McDonald's click here.
Shares of McDonald's closed at $95.32 yesterday.
Affects stocks include McDonald's Corp (NYSE: MCD), Bloomin' Brands, Inc. (Nasdaq: BLMN), Texas Roadhouse, Inc. (Nasdaq: TXRH), The Wendy's Company (Nasdaq: WEN), Del Frisco's Restaurant Group, Inc. (Nasdaq: DFRG), Chipotle Mexican Grill, Inc. (NYSE: CMG), Ruth's Hospitality Group Inc. (Nasdaq: RUTH), Yum! Brands, Inc. (NYSE: YUM), and Darden Restaurants, Inc. (NYSE: DRI).
"We believe most QSR chains had been planning for beef prices to be up in the low- to mid single-digit range in 2014. "Choice" beef, which is the primary product used at casual dining steakhouses, is up ~15% YTD in 2014. This brings the Y/Y pricing to ~+23% currently. We believe most chains (such as TXRH, DRI, and BLMN) had been planning for steak prices to be up in the mid- to high single-digit range in 2014. The "prime" beef prices that we track (used in upscale steakhouse) have not moved in tandem with the other cuts thus far this yr. For example, prime beef prices are DOWN 8% YTD and up 4-5% Y/Y," said analyst Jason West.
"For the cos. under our coverage with material beef exposure, each 5% move in beef prices impacts earnings by ~4-5%, on avg. (all else being equal). The cos. with the highest earnings exposure to beef prices incl: TXRH, RUTH and BLMN (~6-8% EBIT impact for each 5% move in beef prices). Lowest exposure = YUM, MCD, CMG (~1% EBIT impact for each 5% move in beef)," he added.
"This means, that if a company had been budgeting for ~5% beef infl., but infl. ends up at ~10%, then earnings could be hit by ~8% for cos. with higher beef exposure. We see TXRH at greatest risk here given high sensitivity to beef prices (~42% of COGS), the fact that TXRH has recently taken a menu price increase that was predicated on lower beef infl., and given limited cost-cutting opportunities in other parts of the P&L. That said, wholesale pricing trends do not always tie directly to company costs due to local purchasing arrangements, prior year contract prices, etc," he said.
For an analyst ratings summary and ratings history on McDonald's click here. For more ratings news on McDonald's click here.
Shares of McDonald's closed at $95.32 yesterday.
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