Goldman Takes A Bite Of Darden, Spits Out Bloomin' Brands, Wingstop

Goldman Sachs has a good feeling about the dining sector.

“We are optimistic on restaurants’ top-line trajectory through 2H18, and see no historical precedent for a rapid reversal from new all-time highs of discretionary wallet share,” the firm said in a Tuesday note.

Goldman does have more faith in some restaurants than others.

The Ratings

Goldman Sachs analyst Karen Holthouse: 

• upgraded Darden Restaurants, Inc. DRI from Neutral to Buy and raised the price target from $106 to $130;
• upgraded Bloomin’ Brands Inc BLMN from Sell to Neutral and maintained an $18 target; and
• downgraded Wingstop Inc WING from Buy to Neutral but raised their target from $58 to $66.

The Thesis

Goldman sees risks in labor and delivery costs, quarter-over-quarter “choppiness” and investor awareness that fast food faces a high first-quarter comparable, Holthouse said in a Tuesday note. (See her track record here.)

At the same time, near-peak valuations relative to other discretionary sectors suggest market optimism may already be baked in.

The latter factor merits a sell of Wingstop shares, the analyst said. Goldman Sachs, although generally bullish on comp and unit growth fundamentals, considers the metrics already well-reflected in Wingstop shares.

Bloomin’ Brands’ relatively low valuation appears to account for the analyst's sub-consensus outlook.

“Our survey data suggest some reasons for comp optimism,” Holthouse said in the upgrade note.

Darden appears most palatable, with upside potential for Olive Garden and LongHorn Steakhouse comps, she said. 

“We believe off-premise can continue to act as a 1-percent-plus comp tailwind in F19 and note positive recent data points in search trends."

Price Action

Darden shares were up 0.59 percent at $119.38 at the close Tuesday, while Bloomin’ Brands was down 2.2 percent at $18.71 and and Wingstop was down 1.91 percent at $66.19.

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