What's On The Menu? Wells Fargo Cooks Up Some Stock Picks

As 2020 comes to an end and a vaccine could usher in a return to some form of normalcy, several restaurant stocks are uniquely positioned to benefit from consumers "flush with cash to spend," according to Wells Fargo.

Better Setup In 2021: Casual dining companies took several steps in 2020 to improve their operations, including trimmed menus, more efficient marketing spend with a focus on digital, and continued growth through off-premise channels, analyst Jon Tower wrote in a Thursday note. These catalysts warrant the most constructive stance on the space since even before the great recession.

Granted, not all restaurant chains will benefit equally and a handful of rating changes reflects this view.

"As 2020 taught us, anything is possible (positive & negative), so we plan to stay nimble and on top of any thesis-changing events," Tower wrote. "In the interim, stay hungry friends!"

Related Link: Chipotle Mexican Grill Has A Following Wind Into 2021, Stifel Says In Upgrade

The Upgrades

Tower upgraded the following names:

BJ's Restaurants, Inc. BJRI from Equal-Weight to Overweight, price target lifted from $30 to $44. The company should benefit from new product news, better marketing, consistent traffic growth, and less competitive pressures.

Darden Restaurants, Inc. DRI from Equal-Weight to Overweight, price target lifted from $115 to $133. The company's decision to avoid margin dilutive delivery will impact near-term market share but will benefit long-term profit growth given improved in-store operations.

Restaurant Brands Interntional Inc QSR from Equal-Weight to Overweight, price target lifted from $60 to $74. 2021 should be a rebound year while longer-term catalysts include a reacceleration of unit growth.

Yum! Brands, Inc. YUM from Equal-Weight to Overweight, price target lifted from $109 to $125. The company is well-positioned to "restart growth sooner than many competitors."

The Downgrades

Cracker Barrel Old Country Store, Inc. CBRL from Equal-Weight to Underweight, price target lowered from $136 to $132. The company is over-exposed to breakfast and has an older client base and the inclusion of alcohol to attract younger clients will take time to yield results.

Dave & Buster's Entertainment Inc PLAY from Equal-Weight to Underweight, price target unchanged at $14. The company will find it difficult to recover margins and average unit volume at the same time due to "COVID-19 related caution."

Red Robin Gourmet Burgers, Inc. RRGB from Equal-Weight to Underweight, price target lifted from $12 to $15. The burger chain was challenged prior to the pandemic and there are better investments elsewhere in the bar and grill category.