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Morgan Stanley Thinks Europe Exposure & FX Headwinds Weigh On Q3 Earnings For Restaurants

  • Morgan Stanley analyst John Glass raised the price target of Chipotle Mexican Grill Inc (NYSE: CMG) and Wingstop Inc (NASDAQ: WING) to $1,847 and $128, respectively.

  • Glass slashed the price target of Domino's Pizza Inc (NYSE: DPZ), McDonald's Corp (NYSE: MCD), Yum! Brands Inc (NYSE: YUM), Restaurant Brands International Inc (NYSE: QSR), The Wendy's Company (NASDAQ: WEN), Krispy Kreme Inc (NASDAQ: DNUT), Shake Shack Inc (NYSE: SHAK), Jack In The Box Inc.  (NASDAQ: JACK), Sysco Corp (NYSE: SYY), US Foods Holding Corp. (NYSE: USFD) and Bloomin' Brands, Inc. (NASDAQ: BLMN).

  • The analyst believes the U.S. restaurant group rose at the beginning of Q3, only to retreat again late in the quarter as global economic concerns ramped up again in a slightly different form.

  • Glass said casual dining restaurants (CDR) performed better than Quick Service Restaurants (QSR) in Q3.

  • The primary headwinds were international pressures (European consumers + more inflation) and FX.

  • In the U.S., the good news is that sales picked up over the past two months, and while consumer sentiment may not be out of the woods, it has not worsened.

  • The dynamic of better sales and lower inflation is most constructive for casual dining, least so for distributors, where food inflation had been a sales tailwind, added Glass.

  • He has seen heightened focus on value proposition and more promotional and marketing activity in the industry, after more than two abnormal years, in some cases bringing back popular pre-COVID offers at a higher price point or more blanket discounting.

  • The analyst noted Europe and International macro concerns with both sales and cost headwind would impact MCD, YUM, QSR, and DPZ.

  • The FX impact will be felt more in companies with more international exposure, cited Glass.

  • Other factors to watch are pricingm demand trends, promotional activity, and input costs.

  • Also ReadBurger King To Shell Out $400M To Ramp Up Sales In US

  • Price Action: CMG shares are trading higher by 0.72% at $1,486.52 on the last check Tuesday.

Latest Ratings for CMG

Date

Firm

Action

From

To

Feb 2022

Morgan Stanley

Maintains

Overweight

Feb 2022

Deutsche Bank

Maintains

Hold

Feb 2022

Barclays

Maintains

Equal-Weight

View More Analyst Ratings for CMG

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