Feb. 9, the date of the opening ceremony of the Winter Olympics, might be the start of a tough two-week period for the restaurant business, according to Goldman Sachs.
“Cold and inclement weather is likely a first-quarter headwind… and the Winter Olympics could also encourage food-at-home versus food-away-from-home spending,” wrote Goldman analysts in Friday note.
Analysts also expressed near-term caution because of the likely lag between the benefits of personal tax cuts and wage boosts and restaurant spending. “[T]here are no signs that price is an easy lever to pull,” analysts said.
Overall, analysts say they have a “favorable” view of the restaurant sector, a beneficiary of the new tax reform measures, although Goldman is selective about investment opportunities.
Goldman downgraded shares of Bloomin’ Brands Inc.
to sell from neutral, and cut its price target to $17 from $18.25. Bloomin’ Brands portfolio includes Outback Steakhouse and Carrabba’s Italian Grill.
“[W]e see risk to Bloomin Brand’s top-line even in a more constructive consumer environment, and low margins put Bloomin’ Brands at outsized risk of reinvestment from tax relief,” analysts wrote. “We could become more positive if we saw signs that Bloomin Brands was re-establishing a steady and upward comp trajectory at Outback (more than 50% of revenue), or our own survey suggested initiatives were gaining traction versus peers.”
On the other hand, Goldman upgraded Jack in the Box Inc.
to buy from neutral. Analysts maintained their $109 price target.
“We continue to have a muted view of Jack in the Box comp trends going forward; however we also believe investor expectations have also reset below consensus, pro forma free cash flow following the sale of Qdoba can provide a valuation floor, and we see opportunity for domestic quick-service restaurants to outperform casual [dining] in the early days of tax reform,” the report said.
Jack in the Box announced last month that it was selling the Qdoba Mexican-food chain for $305 million.
Despite the upgrade, Goldman thinks McDonald’s Corp.
will continue to “dominate the conversation in fast food,” with share gains and outperformance into the future.
McDonald’s price target was recently raised at Morgan Stanley (to $184 from $162), J.P. Morgan (to $186 from $175), SunTrust Robinson Humphrey (to $187 from $178), BTIG (to $200 from $175), and Instinet (to $190 from $180), which also named the fast-food giant its top U.S. restaurant stock pick.
Jack in the Box shares closed up nearly 2% on Friday but down 6.8% for the last three months.
Bloomin’ Brands shares closed down 0.3% on Friday, but up 21.3% for the last three months.
McDonald’s shares are up 5.8% for the last three months, while the S&P 500 index
is up 9.6% for the period.