On Tuesday, March 10, analyst Jason West of Credit Suisse released a handful of ratings on individual restaurants and issued a Neutral rating for the industry as a whole, noting that the sector is “entering happy hour but without the discount.” He continued, “Fundamentals are turning more positive and multiple tailwinds should support future earnings for listed restaurant chains. However, we view those benefits as largely captured in current valuations. Stock selection is critical in 2015 and beyond.”
Here are four highlights of his report:
Chipotle (NYSE: CMG)
Jason West initiated coverage on Chipotle with an Outperform rating and a $785 price target. He is bullish on the Mexican fast-casual dining establishment because it “offers the best combination of growth and returns in the group.” Customers flock to Chipotle for its high-quality, customizable, and healthy meals. West expects Chipotle to continue to grow, and noted, “Given a recent pullback, the stock is trading near an all-time low relative to the industry.”
West pointed out that some analysts are concerned about flat -same-store sales and rising food costs impacting prices, but the analyst does not believe the latter will have a significant affect because Chipotle’s customer base appreciates the high-quality food.
Jason West has rated CMG 13 times since February 2011 with a 50% success rate recommending the Mexican fast casual chain and a +69.6% average return per recommendation.
The top analyst consensus for Chipotle on TipRanks is Moderate Buy.
Starbucks (NASDAQ: SBUX)
Jason West initiated coverage on Starbucks with a Neutral rating and $97 price target. West notes that the coffee powerhouse has room to grow, but remains Neutral on the stock due to a “remarkable run” in prices. Furthermore, West is cautious about Starbucks’ high valuation, growth headwinds, high expectations for same-store sales growth, and elevated expectations. West also noted the absence of COO Troy Alstead, who is taking a year off. However, his colleagues remain unsure of his return.
Jason West has rated SBUX 8 times since March 2011 with an 86% success rate recommending the coffee chain and a +24.4% average return per recommendation.
The top analyst consensus for Starbucks on TipRanks is Moderate Buy.
Yum! Brands (NYSE: YUM)
Jason West initiated coverage on Yum! Brands with an Underperform rating and a price target of $74. The fast food company operates Taco Bell, KFC, and Pizza Hut. Yum! Brands is expanding in China with the help of the country’s increasing consuming class. However, West noted, “We believe the pace of recovery in YUM’s China business (~33% of profits) will be slower than expected due to weak macro trends and continued aggressive supply additions in that market, potentially causing an earnings miss this [year].” West is also concerned about the deceleration in China’s economy and an increase of competition. Yum! Brand franchises have been spreading rapidly throughout China, though West fears “the market cannot support this new supply, particularly given the weakened state of the KFC brand and the Chinese economy.”
Jason West has rated YUM 10 times since October 2009 with a 67% success rate recommending the fast food company and an +8.7% average return per recommendation.
The top analyst consensus for Yum! Brands on TipRanks is Hold.
McDonald’s (NYSE: MCD)
Jason West initiated coverage on McDonald’s with a Neutral rating and a $99 price target. West noted an “attractive dividend yield” and “potential strategic changes and improved execution under new CEO Steve Easterbrook,” who took over this month and will be in charge of turning around the fast food company’s sluggish sales and unhealthy reputation. West noted other challenges in turning around the company, such as simplifying McDonald’s sprawling menu, competing with the growing fast casual sector, and more ingrained “secular headwinds around food consumption.”
Jason West has rated MCD 14 times since April 2009 with a 62% success rate recommending the iconic fast food restaurant and a +4.0% average return per recommendation.
The top analyst consensus for McDonald’s on TipRanks is Hold.
Overall, Jason West has a 75% success rate recommending stocks with a +19.9% average return per recommendation.