Wall Street Analysts Comment on Major Restaurants

Written by Aaron Wise
Friday, July 10, 2020 at 11:24am CDT

Analysts have published surprisingly upbeat commentary on several restaurants during the past few weeks. Highly trained, well paid, and supported by sizable research teams, Wall Street’s analysts often appear on television to discuss their influential forecasts.

Yesterday, analysts at the $23 billion investment bank Credit Suisse initiated coverage of Darden Restaurants with an Outperform rating and share price target of $95, suggesting upside of 33% from Darden’s current valuation. Darden is the parent company of Olive Garden, LongHorn Steakhouse, Bahama Breeze, Yard House, Capital Grille, Cheddar’s, Eddie V’s and Seasons 52. 

Credit Suisse also initiated coverage of Cheesecake Factory at Neutral with a $24 price target, suggesting 14% upside potential from current levels. Credit Suisse also initiated coverage of Bloomin’ Brands with a Neutral rating and $12 price target, suggesting 23% upside. Bloomin’ Brands is the parent company of Carrabba’s, Bonefish Grill, Fleming’s, and Outback Steakhouse.

Also yesterday, analysts at the $67 billion investment bank Goldman Sachs upgraded Keurig Dr Pepper from Neutral to Buy.

On July 2, an analyst at the $187 Brazilian banking giant Bradesco upgraded Arcos Dorados, the largest franchisee of McDonald’s, from Neutral to Outperform.

On July 1, Wedbush analyst Nick Setyan initiated coverage of Papa John’s at Outperform with a $95 share price target, suggesting 14.9% upside as of the time of his initiation, or 7% upside from today’s valuation.

The biggest contributor to Wall Street’s positive outlook for these restaurants has been government stimulus. Congress has passed $2.6 trillion in fiscal aid since the COVID-19 pandemic began, most of which has benefited the housing market, but at least $36 billion has benefited restaurant payrolls, according to our analysis. The restaurant industry will lose approximately $240 billion in revenue this year, unless Congress passes other fiscal stimulus like the $120 billion Restaurants Act of 2020. Below is a breakdown of the $2.6 trillion of government aid so far this year.

• 26%: Paycheck Protection Program (PPP)
  • $670 billion
• 19%: U.S. Treasury’s Economic Stabilization*
  • $500 billion
• 15%: Unemployment insurance
  • $375 billion
• 11%: Economic Impact Payments ($1,200 checks)
  • $282 billion
• 9%: Department of Health
  • $232 billion
• 6%: U.S. Treasury Coronavirus Relief Fund*
  • $150 billion
• 14%: Miscellaneous*
  • $365 billion

*Importantly, the U.S. Treasury has a General Account that can be used with limited disclosure for a variety of purposes at the discretion of Secretary Steven Mnuchin. This so-called general checking account contained approximately $1.2 trillion as of July 1st. Dr. Z. Barton Wang explains, “The Fed has increased its balance sheets by about $3 trillion. During the same time, the Treasury also increased its own balance sheet — or checking account balance — by about $1.2 trillion. That’s about 40% of all the quantitative easing that was conducted by the Fed, has been absorbed by the Treasury Department… This is like putting aside a whole year of spending, putting the emergency spending for COVID aside.”

There have been over three million cases of COVID-19 in the U.S. to date, including 132,056 deaths. Since yesterday, 64,771 cases have been added. U.S. hospitals report 43,895 patients currently hospitalized for the disease.

Photo by lo lo on Unsplash