Wedbush hopes margins can recover for restaurants in 2023, updates ratings

Dennys

21/12/2022 13:47

** Wedbush in a sector overview note on restaurants says
hopes for a 2023 margin recovery have driven restaurant
valuations up
    ** Brokerage notes in order for margins to recover in line
with current 2023 expectations, more price increases are
necessary, due to inflation 
    ** Notes Domino's Pizza Inc  DPZ.N  and Papa John's
International  PZZA.O  offer compelling customer value
proposition, but adds path to recapture margin differs among
them; downgrades PZZA to "neutral"
    ** Brokerage says quick-service-restaurant chains like
McDonald's Corp  MCD.N  and Wendy's Co  WEN.O  also relatively
well positioned; however, downgrades Jack in the Box Inc
 JACK.O  to "neutral"
    ** Attributes downgrade to ongoing uncertainty regarding Del
Taco's re-franchising path and less visibility into margin
trends
    ** Wedbush says full service restaurants to remain under
pressure, however sees Darden Restaurants  DRI.N  as well
positioned to sustain share gains within category 
    ** Brokerage downgrades Denny's Corp  DENN.O  and The ONE
Group Hospitality  STKS.O  to "neutral" saying both have "overly
optimistic margin expectations to hurdle in 2023"
    ** Wedbush also notes fast casual restaurants may start to
feel top-line squeeze more than they have thus far, rendering it
difficult to meet both comp and margin expectations
    ** It downgrades Shake Shack Inc  SHAK.N  to "neutral" 
    ** Up to Tuesday's close, shares of DPZ, PZZA, MCD, WEN,
JACK, DRI, DENN, STKS and SHAK down between 0.31% to 50.4% YTD  
 (Reporting by Granth Vanaik in Bengaluru)
 ((Granth.Vanaik@thomsonreuters.com;))