Casual Dining Stocks Struggle To Cook Up More Foot Traffic

The fourth quarter is shaping up to be a difficult one for casual dining stocks, and one Wall Street analyst issued a wave of downgrades Monday in response to the latest industry data.

The Analyst

BMO Capital Markets analyst Andrew Strelzik made the following rating and target changes:

Bloomin’ Brands Inc BLMN downgraded from Outperform to Market perform, price target lowered from $28 to $21.
Chuy’s Holdings Inc CHUY downgraded from Market Perform to Underperform, price target lowered from $28 to $23.
Darden Restaurants, Inc. DRI downgraded from Market Perform to Underperform, price target lowered from $105 to $96.
Brinker International, Inc. EAT downgraded from Market Perform to Underperform, price target lowered from $43 to $40.
Texas Roadhouse Inc TXRH downgraded from Market Perform to Underperform, price target lowered from $62 to $58.

The Thesis

Restaurant investors should prepare for a drop in same-store sales and foot traffic in Q4, according to Strelzik. He says the widening of the price gap between food-at-home options and food-away-from-home options is pressuring the restaurant business, and the trend will likely start impacting company financials in the second half of 2018.

“As a result, we are downgrading each of the casual dining stocks in our coverage one notch as decelerating same store sales trends likely will lead to multiple contraction from near-peak levels and earnings risk,” Strelzik wrote in a note.

Strelzik lowered his price targets for the group by 15 percent to 20 percent and said the headwinds in the casual dining business will be compounded by difficult comparisons from a year ago.