2023-06-26 07:29:02 ET
Wells Fargo turned cautious on casual dining restaurant stocks on Monday. The firm started off coverage on Brinker International ( NYSE: EAT ) with an Underweight rating, while tagging both Texas Roadhouse ( TXRH ) and Cheesecake Factory ( CAKE ) with Equal Weight ratings.
Analyst Jon Parke and team expect sentiment on the group to shift more negative as trends start to slow. The headwinds seen for the casual dining names include the much tougher sales comparisons that begin in July and the view that off-premise is much less of a driver moving forward after generating more than 50% of total sales growth for the group over the last four years. Parke also noted the outsized peak menu pricing should moderate to low-to-single digits by the end of the year in a development that may pressure margins.
The biggest factor of all seen by Wells Fargo is that consumer pressures are building on the consumer.
"While restaurants have proven to be an affordable luxury thus far, we see pressure building via: 1) credit card debt rising +13% y/ y; 2) excess pandemic savings dwindling at the low & middle end; and 3) the resumption of student loan payments this Fall could be a 100-200bps hit to discretionary spending, all of which will likely lead to fewer visits, more trade down & a shift back to grocery."
Wells Fargo assigned a price target of $31 to Brinker International ( EAT ). Shares of EAT fell 1.64% in premarket action to $33.49.
The firm assigned a PT of $113 to Texas Roadhouse and started off Cheesecake Factory ( CAKE ) with a PT of $33.
More on restaurant stocks:
- Compare growth, profitability, and valuation metrics on Brinker International, Texas Roadhouse and Cheesecake Factory
- Consumer stocks are in the spotlight with student loan repayments and food disinflation in the mix
- Seeking Alpha's Quant Ratings across all restaurant stocks
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Restaurant check: Brinker International, Texas Roadhouse and Cheesecake Factory are viewed cautiously at Wells Fargo