Wells Fargo Raises Restaurant Price Targets Ahead Of Q3 Reports

Wells Fargo is adjusting price targets ahead of the restaurant sector's earnings season.

The Analyst

Wells Fargo's Jon Tower:

• Maintained a Market Perform on Chipotle Mexican Grill, Inc. CMG with a price target lifted from $415 to $418.
• Maintained a Market Perform on Dunkin Brands Group Inc DNKN with a price target lifted from $66 to $67.
• Maintained an Outperform on Mcdonald's Corp MCD with an unchanged $185 price target.
• Maintained a Market Perform on Restaurant Brands International Inc QSR with a price target lifted from $63 to $69.

The Thesis

The risk-reward profiles of quick service restaurants are more attractive than casual dining peers, Tower said in a note. 

Casual dining same-store sales performance is likely to peak in Q3 earnings while top- and bottom-line growth slows, the analyst said. 

Chipotle's Q3 same-store sales could fall short of the 5.5 percent the Street is looking for, and the stock is trading at a balanced risk-reward profile, he said. 

• Dunkin' Brands could report in-line with a same-store sales estimate of 1.5 percent, but the stock's high valuation leaves little room for any "fundamental hiccups," Tower said. 
• McDonald's could show continued market share gains in Q3 in a "muted" environment for quick service restaurants, he said. 
• Restaurant Brands could show sequential same-store sale improvements from a revitalized Tim Hortons, although its other chains decelerated sequentially, according to Wells Fargo. 

Price Action

Chipotle shares were 0.3 percent higher at $433.45 at the time of publication Tuesday, while Dunkin shares were up nearly 1 percent at $73.86. McDonald's was trading up 0.1 percent at $141.33 and Restaurant Brands was 0.36 percent higher at $57.81. 

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