Restaurants Have Significant Capital Efficiency Firepower (PNRA) (SBUX) (MCD)
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Price: $314.93 --0%
Rating Summary:
12 Buy, 15 Hold, 1 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 17 | Down: 14 | New: 16
Rating Summary:
12 Buy, 15 Hold, 1 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 17 | Down: 14 | New: 16
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While restaurants may look expensive on some measures, many are underlevered and Deutsche Bank analyst Jason West sees room for increased dividends and buybacks.
"We believe capital efficiency will be a key theme in the restaurant sector in coming months/yrs," said West. "We believe companies with a heavy franchise mix make the most sense for more aggressive leverage, though it is difficult to see why any co. with reasonably stable cash flow would not take advantage of these interest rates."
"For the typical restaurant co. with ~9% EBIT margins, 35% tax rate, and trading at a low-20s P/E (sector avg.), adding 1 turn of leverage at a 4% interest rate, would be ~5% accretive to EPS. In many cases, we believe restaurant companies could add 2x leverage or more," he said.
Stocks with capital efficiency firepower include Panera Bread Co. (Nasdaq: PNRA), Starbucks Corporation (Nasdaq: SBUX), and McDonald's Corp. (NYSE: MCD). Texas Roadhouse, Inc. (Nasdaq: TXRH) and Buffalo Wild Wings Inc. (Nasdaq: BWLD) are also relatively underlevered, noted Deutsche Bank.
Deutsche Bank modified its price target on Panera Bread to $200 (from $190) and maintained a buy rating.
For an analyst ratings summary and ratings history on Panera Bread (Nasdaq: PNRA) click here. For more ratings news on Panera Bread click here.
Shares of Panera Bread closed at $184.99 yesterday.
"We believe capital efficiency will be a key theme in the restaurant sector in coming months/yrs," said West. "We believe companies with a heavy franchise mix make the most sense for more aggressive leverage, though it is difficult to see why any co. with reasonably stable cash flow would not take advantage of these interest rates."
"For the typical restaurant co. with ~9% EBIT margins, 35% tax rate, and trading at a low-20s P/E (sector avg.), adding 1 turn of leverage at a 4% interest rate, would be ~5% accretive to EPS. In many cases, we believe restaurant companies could add 2x leverage or more," he said.
Stocks with capital efficiency firepower include Panera Bread Co. (Nasdaq: PNRA), Starbucks Corporation (Nasdaq: SBUX), and McDonald's Corp. (NYSE: MCD). Texas Roadhouse, Inc. (Nasdaq: TXRH) and Buffalo Wild Wings Inc. (Nasdaq: BWLD) are also relatively underlevered, noted Deutsche Bank.
Deutsche Bank modified its price target on Panera Bread to $200 (from $190) and maintained a buy rating.
For an analyst ratings summary and ratings history on Panera Bread (Nasdaq: PNRA) click here. For more ratings news on Panera Bread click here.
Shares of Panera Bread closed at $184.99 yesterday.
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