A Few Takeaways From Guggenheim's Restaurant Summit: Darden, Habit, El Pollo And Wingstop

Guggenheim recently hosted its third annual Emerging Growth Restaurant Summit in Dallas, which reaffirmed a healthy environment for the restaurant sector and reinforces a bullish stance on a handful of stocks.

The Analyst

Guggenheim's Matthew DiFrisco made the following rating and price target changes:

• Upgrade Wingstop Inc WING from Neutral to Buy with a new $80 price target.
• Maintain El Pollo LoCo Holdings Inc LOCO at Buy, price target lifted from $14 to $17.
• Maintain Habit Restaurants Inc HABT at Buy, price target lifted from $15 to $17.
• Maintain Darden Restaurants, Inc. DRI at Buy, unchanged $135 price target.

Key Takeaways

Seven management teams spoke at the conference and there was a consistent theme among all management teams of an improving consumer environment, DiFrisco said in a research report. It would be logical to conclude that based on the presentations consumers are undergoing a "modest trade up."

Due to a tight workforce, DiFrisco said all seven management teams also discussed wage pressures of around 5 percent. However, most of the companies aren't rushing to increase menu prices immediately and are instead focused on a "measured" price increase over the longer-term. Construction costs were also cited as a financial concern, but also implies industry growth and supply will remain in check.

Wingstop

• Near-term catalysts like loaded fries and Cajun fried corn should support a mid-single-digit same-store sales growth through 2019.
• New delivery options are likely to improve brand awareness and target a broader demographic.
• A strong domestic and international pipeline of new store opens should support double-digit net development through 2025.

El Pollo And Habit

• Expectations for a return to positive franchise same-store sales in the back half of 2018 removes the discounted valuation.
• The firm's $17 price target is based on a 12.5 times multiple on EV/EBITDA.
• Habit Restaurants' stock should also be valued at 12.5 times 2018 estimated EV/EBITDA.

Darden Restaurants

• Guggenheim's $135 price target is based on a premium valuation multiple of 14 times 2020 estimated EBITDA.
• The company's superior management team, market share gains and ongoing momentum justifies a premium valuation.

Related Links:

3 Restaurants That Could See Labor Pressure From Amazon's Wage Increase

BTIG Says Wingstop's Stock Has Gone 'Too Far Too Fast'