Morgan Stanley Thinks Europe Exposure & FX Headwinds Weigh On Q3 Earnings For Restaurants

Morgan Stanley analyst John Glass raised the price target of Chipotle Mexican Grill Inc CMG and Wingstop Inc WING to $1,847 and $128, respectively.
Glass slashed the price target of Domino's Pizza Inc DPZ, McDonald's Corp MCD, Yum! Brands Inc YUM, Restaurant Brands International Inc QSR, The Wendy's Company WEN, Krispy Kreme Inc DNUT, Shake Shack Inc SHAK, Jack In The Box Inc. JACK, Sysco Corp SYY, US Foods Holding Corp. USFD and Bloomin' Brands, Inc. BLMN.
The analyst believes the U.S. restaurant group rose at the beginning of Q3, only to retreat again late in the quarter as global economic concerns ramped up again in a slightly different form.
Glass said casual dining restaurants (CDR) performed better than Quick Service Restaurants (QSR) in Q3.
The primary headwinds were international pressures (European consumers + more inflation) and FX.
In the U.S., the good news is that sales picked up over the past two months, and while consumer sentiment may not be out of the woods, it has not worsened.
The dynamic of better sales and lower inflation is most constructive for casual dining, least so for distributors, where food inflation had been a sales tailwind, added Glass.
He has seen heightened focus on value proposition and more promotional and marketing activity in the industry, after more than two abnormal years, in some cases bringing back popular pre-COVID offers at a higher price point or more blanket discounting.
The analyst noted Europe and International macro concerns with both sales and cost headwind would impact MCD, YUM, QSR, and DPZ.
The FX impact will be felt more in companies with more international exposure, cited Glass.
Other factors to watch are pricingm demand trends, promotional activity, and input costs.
Also Read: Burger King To Shell Out $400M To Ramp Up Sales In US
Price Action: CMG shares are trading higher by 0.72% at $1,486.52 on the last check Tuesday.

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