Lucy Nieves
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Goldman Grades America's Restaurants; Recommends Buy On Domino's, Starbucks

Goldman Sachs recommends Buying Domino's Pizza, Inc.  andStarbucks Corporation  ahead of their quarterly earnings.

American restaurants such as Domino's, Starbucks, Chipotle Mexican Grill, Inc.  and Dunkin Brands Group Inc  are expected to report their quarterly numbers on Thursday, July 21.


Goldman Sachs expects Domino's to post EPS of $0.96 and Starbucks to earn $0.48. It estimates Chipotle and Dunkin' Brands earnings at $0.46 a share and $0.56 a share, respectively. The consensus estimate calls for EPS of $0.94 for Domino's, $0.49 for Starbucks, $0.91 for Chipotle and $0.56 for Dunkin'.

For Domino's, Goldman expects 6.9 percent in second quarter U.S. comps, which roughly benchmarks Domino's to about the 150bps deceleration "we expect in 2-year fast food comps." The analyst has a price target of $139 on the pizza place.

"That said, more efficient ad spend could drive upside, with 'dominos car' search volumes suggesting a high ROI on spend and growth to DPZ's website/app reaccelerating in the quarter," analysts including Karen Holthouse wrote in a note.


For Starbucks, the analyst said investors should be focusing on the U.S. comps. Holthouse' price target for Starbucks stands at $73.


For the Neutral-rated Chipotle, Holthouse sees risk biased to the downside into the quarter.

"We do not believe CMG saw a material improvement in the top-line trend post food safety concerns in 2Q, and believe our 2Q comp estimate of (22.7 percent) is roughly marked to investor expectations," the analyst highlighted.

"The bigger focus may be on the QTD trend; however, a lack of customer data makes it difficult to tie Chiptopia/chorizo benefits into a longer-term tailwind," Holthouse continued.

In addition, Holthouse continues to see risk to second half consensus numbers on the back of a slower than expected top-line trajectory, and in particular, higher-than-expected marketing/promotional expenses. Holthouse has a price target of $490 on the stock.


For the Neutral-rated Dunkin' Brands, Holthouse noted that second-quarter results should offer a better read on the underlying comp trend after weather provided a 90bps tailwind to first quarter comps.

"We continue to see price increases creating risk to the traffic outlook, and it appears unlikely a national Coolatta promotion drove a material traffic increase. Technology also remains a focus, although our analysis of 'On the Go' functionality skews negatively," Holthouse added.

The analyst has a price target of $45 on the shares.