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Why Canaccord Only Has An Appetite For These 4 Restaurant Stocks

Darden Restaurants, Inc. NYSE:DRI, Dave & Buster's Entertainment NASDAQ:PLAY - Why Canaccord Only Has An Appetite For These 4 Restaurant Stocks

While there are concerns surrounding the restaurant industry, given the recent top-line issues and ongoing elevated labor costs, multiples contraction had presented some opportunities, Canaccord Genuity’s Lynne Collier said in a report. He initiated coverage of four companies with Buy ratings.

Analyst Collier recommended companies that have the following key factors:

  • Positive SSS outlook and potential for market share gains
  • Attraction to on-trend millennials
  • Reasonable historical and relative valuations
  • Strong FCF and return of cash to shareholders

Related Link: Icing On The Cake: Cheesecake Factory Is A "Best-In-Class" Operator, Says Canaccord

Darden Restaurants

Collier cited the reasons for the Buy rating on Darden Restaurants, Inc. DRI 0.18% as:

  1. The company’s strong, operations-focused management team
  2. Its portfolio of brands offering diversification and strong AUVs
  3. Market share gains expected to continue, driven by menu innovation, Olive Garden remodels, table-top tablets and focus on off-premise
  4. Solid FCF allows the company to return cash to shareholders, via $100-$200 million in annual share repurchases and continuous dividend hikes

The price target is at $74 for Darden Restaurants.

Dave & Buster's

The analyst mentioned the following reasons for being constructive on Dave & Buster's Entertainment, Inc. PLAY 2.68%:

  1. Proven management with a strong track record, which had achieved a 5-year EBITDA CAGR of ~21 percent
  2. Portable concept is only about 40 percent through its growth cycle
  3. Differentiated brand with almost no national competition
  4. Best-in-class unit economics with AUVs of ~$12 million and cash-on-cash returns approaching 50 percent
  5. SSS growth consistently outpacing industry benchmarks
  6. Attractive valuation versus high-growth peers

The price target is at $52 for Dave & Buster's.

Panera Bread

The Canaccord Genuity report said that the positive investment thesis on Panera Bread Co PNRA 1.53% includes:

  1. SSS outperformance driven by 2.0 conversions, menu innovation, catering and delivery
  2. The company having been on the forefront of technology that improves the guest experience, which is expected to “further distance the brand in the future vs. competitors”
  3. Return to double-digit EPS growth in 2017 and outsized earnings growth likely in 2018/2019, with the company having completed most of the investment

The price target is at $255 for Panera Bread.


Collier enumerated the following reasons for the Buy rating on Sonic Corporation SONC 1.28%:

  1. Market share gains likely to continue
  2. EPS growth expected to remain consistent and relatively strong
  3. FCF yield of ~6 percent is attractive and would allow the company to repurchase shares and hike dividend
  4. Unit growth is expected to accelerate over the next 2-3 years
  5. Compelling valuation versus franchise peers

The price target is at $35 for Sonic.

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Aug 2016Canaccord GenuityInitiates Coverage onBuy
Jul 2016Stifel NicolausDowngradesHoldSell
Jul 2016Wells FargoDowngradesMarket PerformUnderperform

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