- Results from Baird's latest monthly survey of restaurants showed some slight improvement to comps, it says, backing up its confidence in Q3 expectations.
- The private chain survey (representing $15B in annualized sales) showed August comps were down 2%, a tick up from July's -4% but consistent with the direction of the weekly surveys. (And the weekly surveys have continued to improve into September, pointing to ongoing benefits from looser pandemic restrictions in some states.)
- That -2% in August comps breaks down as: quick-service +9%; fast casual -3%; and casual dining -25%. And the overall figure is "reassuring" when you consider that August had a much lower level of expanded unemployment benefits than in July, Baird says.
- Reading through to what it expected for the second half, the firm says the companies that look to have the best chance of beating Q3 estimates are those where models assumed a comps deceleration relative to July; those include Wingstop (NASDAQ:WING), Domino's Pizza (NYSE:DPZ), Chipotle Mexican Grill (NYSE:CMG), and Jack in the Box (NASDAQ:JACK).
- Meanwhile, the new data points make the firm more confident in Q4 projections for pizza, quick-service, and fast casual concepts like Chipotle and Wingstop, but that more improvement is probably necessary in order for casual dining and Shake Shack (NYSE:SHAK) to hit estimates (with some risk coming from colder weather that could put a damper on outdoor dining, which has supported sales for full-service recently).
- It's raising price targets for several of the Neutral names in its coverage, to reflect new multiples, and it gave some attention earlier in the week to Starbucks (NASDAQ:SBUX), Dunkin' Brands (NASDAQ:DNKN), and Chipotle (where the firm matched the Street-high target).
- But the good news means no change for its sectorwide thesis, and it still prefers names that are gaining share by attracting new customers in the current backdrop. Its best 12-month ideas are still Domino's and Chipotle; its price target of $450 on Domino's implies 13% upside, while a target of $1,600 on Chipotle implies 32% upside.
- It also believes Dunkin' and Yum Brands (NYSE:YUM) are attractive on a risk-adjusted basis when "considering their durable income streams and depressed relative valuations (relative to historical)." A price target of $86 on Dunkin' suggests 13% upside, while its $112 target on Yum implies 22% upside.