Casual-dining restaurants have been some of the hardest hit during the Covid-19 pandemic, given that their offerings typically cost more than at fast-food purveyors and they aren’t geared to takeout business. But as investor attention turns to a post-vaccine world, this group’s fortunes could change, according to Stifel—though not all will benefit equally.
Analyst Chris O’Cull took a look at the industry, writing on Tuesday that casual-dining stocks have jumped about 10% since news about a vaccine was released. While he estimates that these companies’ comparable sales are likely drop by a fourth in 2020, “the market is projecting a sharp recovery for the segment.”
He noted that 2022 earnings-per-share estimates appear to be within about 5% for the majority of publicly traded casual-dining stocks, and the group is now down just about 3% year to date, on average, even as they have borne the brunt of Covid-related pain in the restaurant industry.
Clearly, hopes are high that the group can quickly move past the Covid disruption. O’Cull thinks the success of casual-dining companies will hinge on three factors. The first is their ability to retain the higher takeout and delivery sales they have seen during the crisis. The second is the timing and duration of the recovery, and the third is their ability to cement greater cost reductions—and higher off-premise sales—to bring margins at least in line with pre-Covid levels.
His analysis led him to raise his 2022 top- and bottom-line estimates for
(ticker: DRI), whose brands include Olive Garden and Longhorn Steakhouse,
Dave & Buster’s
(TXRH). In a post-vaccine environment “these popular concepts will most likely be able to take advantage of pent-up consumer demand and, in some cases, restaurant closures by smaller chains and independents,” he wrote.
Still, a vaccine remains many months away, and he isn’t ready to go bullish on all the stocks. He reiterated Hold ratings on Darden and Texas Roadhouse, although he raised his price target on Darden by $20, to $120, and on Texas Roadhouse by $12, to $82. He has a Buy rating Dave & Buster’s, and raised his price target to $30 from $24.
Corrections & Amplifications
A previous version of this article incorrectly said Stifle upgraded Dave & Buster’s. It maintained its Buy rating.
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