Yum Brands and Darden top the list of best restaurants stocks at Cowen

May 19, 2022 11:58 AM ETYum! Brands, Inc. (YUM)DRI, SG, CMG, MCD, SBUX, BROSBy: Clark Schultz, SA News Editor4 Comments

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Cowen reranked its list of highest conviction picks in the restaurant sector with inflation headwinds disrupting near-term profit visibility. Analyst Andrew Charles said the firm looked for stories with same-store sales and/or development upside.

That led to Yum Brands (NYSE:YUM) being selected as the top sector pick with a development update later this year seen as a catalyst. Darden Restaurants (DRI) ranked second on the conviction list with a potential 2023 profit guidance update later this year seen as a catalyst.

On YUM: "Yum shares have broad investor appeal, offering a diversified stream of franchise revenue from a 98% franchised business model across 290 brand/country combinations. We like this investment profile amid a challenging domestic (40% of YUM sales) inflationary backdrop with limited visibility in relief. Further, we believe YUM represents a COVID-19 reopening play across emerging markets, that were arguably harder hit by the pandemic than the developed world."

On DRI: "In short, we argue consensus is underestimating the stickiness of the ToGo business, particularly at Olive Garden, that we expect to lead to upside to 2023 Olive Garden same store sales & unit economics to lever industry inflation pressures."

Rounding out Cowen's top five restaurant stocks list are Sweetgreen (SG), Chipotle (CMG) and McDonald's (MCD). Starbucks (SBUX) and Dutch Bros. (BROS) were bounced out of the top five to further down the list.

Compare Seeking Alpha Quant Ratings in the restaurant sector.

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