Which Restaurant Stocks Is RBC Hungry For? - Chipotle Mexican Grill (NYSE:CMG), McDonald's (NYSE:MCD), Starbucks (NASDAQ:SBUX)

RBC analyst Christopher Carril initiated coverage Tuesday of a handful of fast food restaurants and casual dining chains. Here is a summary of each initiation.

Carril initiated coverage of Brinker International, Inc. (NYSE:EAT) at Sector Perform, $45 price target.
The company deserves credit for recent top-line growth and upside margin potential.
Recent same-store sales momentum can be sustained through growth in off-premise orders.
However, the stock is trading at a "fair" valuation of 7.5 times 2021 estimated EBITDA versus average of 8.5 times.

Carril initiated coverage of Chipotle Mexican Grill, Inc. (NYSE:CMG) at Sector Perform, $890 price target.
Chipotle boasts multiple key positive attributes, including "highly visible" drivers of top-line growth.
The restaurant chain appears to be on track to match peak average unit volume of $2.5 million.
Chipotle should show a compounded EPS growth rate of 25% through 2023.
The company's strong growth outlook is already reflected in the stock's current valuation.

Carril initiated coverage of Darden Restaurants, Inc. (NYSE:DRI) at Outperform, $135 price target.
Core brands Olive Garden and LongHorn each showed more than 20 consecutive quarters of positive same-store sales growth.
Digital sales and off-premise growth remain drivers of growth moving forward.
Cheddar (8% of total sales) represents an underappreciated profit story and can contribute up to 25 cents in EPS.
Darden stands out in the "challenging" casual dining segment for is consistency and operating at a position of strength.

Carril initiated coverage of Domino's Pizza, Inc. (NYSE:DPZ) at Outperform, $337 price target.
Domino's continues to offer investors a best-in-class global unit development and double-digit EPS growth story.
2020 will prove to be the easiest domestic year-over-year comparison in at least five years.
Management's two-year and three-year guidance is "more achievable."
The stock deserves a premium valuation at 21.5 times 2021 estimated EBITDA given a clear growth profile.

Carril initiated coverage of Dunkin Brands Group Inc (NASDAQ:DNKN) at Sector Perform, $79 price target.
Dunkin's asset-light all-franchised model helped generate a 4% CAGR operating profit growth and 13% CAGR EPS growth from 2015 through 2019.
Dunkin has yet to show positive traffic since early 2016 and will face a more intense restaurant environment next year.
Current priorities of digital, loyalty, remodeling is the "right plan" for the near-term.
The stock's multiple expanded over the years due to earnings growth but is now "caffeinated" at 16.4 times 2021 EBITDA versus the group average of 15.7 times.

Carril initiated McDonald's Corp (NYSE:MCD) at Outperform, $218 price target.
McDonald's stock can catch up from recent underperformance from "substantial" investments in the domestic business like "Experience of the Future."
Cash flow should accelerate as spending will notably decline in 2021.
After flat-to-slightly down EPS in 2019, earnings are poised to grow moving forward.
Investors should be rewarded with $27 billion in dividends and more in buybacks over the next three years.

Carril initiated coverage of Restaurant Brands International Inc (NYSE:QSR) at Outperform, $77 price target.
Burger King and Popeyes has shown accelerating comp growth and will help spur management's guidance of expanding total stores from 26,000 today to 40,000 over eight to ten years.
Tim Hortons (50% of total operating profit) will remain under pressure in the near-term but a turnaround is likely on remodels and digital initiatives.
The stock is valued roughly inline with the peer group average which is unfair given superior stronger unit, sales, and revenue growth.

Carril initiated coverage of Starbucks Corporation (NASDAQ:SBUX) at Outperform, $97 price target.
Investors had reason to be concerned in 2017 and 2018 but management fixed all issues, including an improved in-store experience.
Starbucks is among the small handful of companies worth more than $100 billion that are expected to show double-digit earnings growth over the next three years.
Recent comp acceleration momentum can be sustained and offset any earnings headwinds in 2020.
An improved business model allows for a greater focus on capital returns to investors.

Carril initiated coverage of Texas Roadhouse Inc (NASDAQ:TXRH) at Sector Perform, $60 price target.
Texas Roadhouse deserves credit for a best-in-class unit growth rate of 5% in 2019 and for consistently showing positive traffic.
However, traffic growth moderated from 3.9% in 2018 to around 2% through the third quarter 2019.
Traffic decline could be attributed to a menu price increase which impacts an "important" driver of traffic.
Management could address menu pricing in March and this may determine if traffic can re-accelerate.

Carril initiated coverage of Wendy's Co (NASDAQ:WEN) at Sector Perform, $22 price target.
Wendy's management guided breakfast to "quickly" reach 10% of all sales but this represents a key risk for the stock.
The research firm's estimates call for 7% of all sales to come from breakfast which implies a slower than expected ramp.
The risk to reward profile on the stock is balanced with a potential for notable upside or downside based on an unclear breakfast launch.

Carril initiated coverage of Yum! Brands, Inc. (NYSE:YUM) at Sector Perform, $107 price target.
The company's three main brands already boast a large footprint yet ongoing global unit growth still stands at 4%.
The struggling Pizza Hut chain could turn-around over the longer-term but signs of stabilization are needed to improve sentiment.
Taco Bell on the other hand represents a "source of yet-to-be-realized upside" after three years of at least 4% global same-store sales growth.
Yum already trades at a premium valuation of 17 times 2021 EBITDA versus 15 to 16 times for global peers.

Is your favorite restaurant chain missing from the list or do you disagree with one of the calls? Email [email protected] with your thoughts.