Morgan Stanley sees modest restaurant growth, upgrades Wingstop, Texas Roadhouse

Investing.com -- The U.S. restaurant industry is poised for modest growth in 2025, with sales projected to rise nearly 5%, up from just over 4% in 2024, according to Morgan Stanley (NYSE: MS).

Morgan Stanley upgraded Wingstop Inc (NASDAQ: WING) and Texas Roadhouse (NASDAQ: TXRH) Inc to "Overweight," citing strong long-term fundamentals despite near-term slowing sales for Wingstop and continued advantages for quality steak operators like Texas Roadhouse.

The brokerage downgraded Wendy’s Co to "Underweight," citing fewer catalysts and challenges in the competitive pricing environment. “we still think WEN is squeezed somewhat by the value wars”

Despite the improvement, the firm cautions against over-optimism, citing ongoing challenges such as rising food inflation, labour pressures, and competitive "value wars" in the quick-service restaurant (QSR) segment.

Top picks include McDonald’s (NYSE: MCD) Corp. and Domino’s Pizza (NYSE: DPZ) Inc. among QSRs, alongside Starbucks Corp (NASDAQ: SBUX). for its early-stage turnaround and Darden Restaurants Inc (NYSE: DRI). for improved comparable sales drivers.

While 2025 may appear stronger optically, Morgan Stanley sees limited upside to earnings estimates across the industry and emphasizes selective stock picking in a bifurcated market.

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