Stifel analyst Chris O’Cull offered updated perspectives on the restaurant industry ahead of a busy earnings schedule to close the month of July. This target trimming included reeling in estimates for key names like Chipotle Mexican Grill ( NYSE: CMG ) and Wingstop ( NASDAQ: WING ).
O’Cull indicated that much of the market expectation for the upcoming earnings reports concern commodity inflation and its possible peak, the state of staffing shortages, construction costs, slowed consumer spending, and foreign exchange impacts. Amid the potential for these variables to trend poorly on earnings, he advised clients to “remain cautious” ahead of the spate of second quarter reports. margin" bull argument.
In particular, he advised that consensus estimates for both Chipotle ( CMG ) and Wingstop ( WING ) are likely overaggressive.
For Chipotle, O’Cull noted that a consensus expectation of 7.5% sales growth in the third quarter is a figure that he and his team “struggle to find a reason to justify”. As such, he believes guidance and full-year EPS is likely to come up short of optimistic forecasts. O’Cull forecast EPS to touch $8.95 for the quarterly report, $0.09 below the expectation among analysts.
Meanwhile, O’Cull advised clients that he expects Wingstop ( WING ) stop to come up short of estimates on earnings day and thereafter see shares impacted by an outsized drop, punishing the stock to an outsized degree in line with its outsized run into th print.
“Given the overall industry slowed in May and June relative to April, we struggle to believe Wingstop saw much improvement from the negative [mid-single-digit] comp it ran in April,” he explained. “Therefore, we lowered our domestic SRS for 2Q to -4% from -2% and 2022 to
flat from +2%.”
Despite maintaining “Buy” ratings on both names, O'Cull lowered his price target on Chipotle ( CMG ) from $1,850 from $1,550 amid the below-consensus expectations and Wingstop’s ( WING ) target was reduced to $120 from $130.
Elsewhere, O’Cull updated his outlook ahead of McDonald’s ( MCD ) earnings on Tuesday. Once again, he anticipated a below-consensus report as his analysis forecast the impact of the company’s withdrawal from Russia to result in a $0.07 to $0.09 to EPS for the quarter. He added that the adverse FX impact is likely being underestimated in consensus estimates.
Read more on the slate of earnings reports due in this week .
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Stifel trims targets on Chipotle, Wingstop ahead of earnings