Bernstein Says Restaurant Stocks Ripe For Picking

Bernstein said in a note on Thursday that "there has never been a worse time to launch coverage on restaurants; there has also never been a better time to launch coverage on restaurants."

Analyst Danilo Gargiulo rated four companies as Outperform: Chipotle Mexican Grill (NYSE: CMG)
(TP: $2,000, +24%), Darden Restaurants (NYSE: DRI) (TP: $153, +22%), Wendy's (NASDAQ: WEN) (TP: $25, +29%) and Yum! Brands (NYSE: YUM) (TP: $144,+28%).

Three companies were rated at Market-Perform: McDonald's (NYSE: MCD) (TP: $267, +5%), Starbucks (NASDAQ: SBUX) (TP: $94, +13%) and Restaurant Brands (NYSE: QSR) (TP: $64, +8%).

In addition, Domino's Pizza (NYSE: DPZ) was rated at Underperform (TP: $334, -9%).

"The pandemic changed us: we have moved to less densely populated areas, we go to the office less frequently, and we learned that everything can be delivered to us, not just pizza. This environment has created the perfect opportunity for disruptors to claim a share of the pie: ghost kitchens, virtual brands, and aggregators. We expect this will result in restaurants needing to remodel stores, increase the tech spend and face greater competition to satisfy a fickler consumer," wrote Gargiulo.

The analyst believes that while factors such as commodity costs, labor costs, and softening consumer spending bring uncertainties to the average restaurant, they are also offering "unprecedented expansion opportunities" for large restaurant brands.

Bernstein's view on the stocks reflects their "fundamental ability" to retain margins, display resilience, continue to build scale, focus growth on international markets and advance their ESG platform.

"The restaurants sector encompasses multiple segments: QSR, Fast Casual, Fine Dining and Coffee Chains. With an average of 73% intra-quarter price return delta between best-performing stocks and worst-performing stocks, it is ripe time for stock picking," wrote Gargiulo.

By Sam Boughedda

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