Domino's Pizza, Restaurant Brands, Sweetgreen In This Analyst's 2024 Top Picks: What's Cooking In For Other Restaurant Companies?

Oppenheimer analyst Brian Bittner has provided the analysis on some of the quick service restaurant chains.

Yum! Brands Inc YUM - Upgrade to Outperform with $154 PT 

The analyst believes YUM represents a diversified business model that drives superior growth, yet is armed with blue-chip-like resiliency.

The analyst's research highlights a risk/reward that is now too attractive to ignore given YUM's high-quality unit growth, reliable earnings momentum, and crown-jewel assets.

Digital sales grew 20% year-over-year in 3Q23 and now represent nearly 44% of global system sales. YUM has differentiated catalysts to accelerate digital at a faster clip than peers, according to the analyst.

McDonald's Corp MCD - Downgrade to Perform from Outperform

After a deep-dive analysis into 2024, the analyst is unable to identify another round of catalysts to consensus earnings forecasts and/or MCD's valuation multiple.

The analyst anticipates FY23 will end with above 9% global SSS growth and nearly 17% EPS growth, well above historic norms.

However, FY24 is going to be tougher for SSS, particularly in the U.S. With more than 10% pricing embedded in full-year FY23 U.S. SSS.

Though global unit growth is accelerating, it can no longer be considered as a stock catalyst, says the analyst.

Papa John's International Inc PZZA - Downgrade to Perform (prior $85 price target removed)

The analyst models FY24 EPS to be $2.72, below the street view of $2.83.

The analyst's FY24 estimate variance versus consensus is driven by lower international profit contribution and lower corp-level EBIT margins.

Though North America SSS is expected to be in-line, the analyst sees a more difficult environment for PZZA-specific SSS upside.

The dilution from the 2023 acquisition of 118 U.K. stores, converting them from franchised to corporate-operated units, would weigh on the financial model through 1H24, given the lack of profitability in the acquired U.K. portfolio, notes the analyst.

Top Picks For 2024 - Domino's Pizza Inc DPZ - Outperform, $470 PT

The analyst anticipates an under-appreciated revival story to drive stock outperformance in 2024.

The analyst's research suggests FY24 estimates for SSS are armed with tangible drivers to bend the trend above consensus, enabling positive earnings revisions and valuation multiple expansion. 

The analyst believes new boosts from relaunched loyalty and third party partnerships bring attractive accretion.

Restaurant Brands International Inc QSR - Outperform, $89 PT

Although the stock is up about 22% since mid-October, the analyst still identifies a compelling investment case and a clear path to more than $4 EPS in FY25.

The analyst also predicts additional positive revisions for EPS in FY24. The analyst is bullish about QSR's ability to sustain above-average SSS momentum at TH, benefit from BK-US's underlying structural portfolio improvements and accelerate global unit growth to more than 5%.

Sweetgreen Inc SG - Outperform, $15 PT

The analyst says now is the time to get aggressive on SG's risk/reward as shares have pulled back to ~$10 at a time the model transitions to sustainable EBITDA profitability starting in 2024.

The analyst says fundamentals are improving with new SSS drivers, expanding restaurant margins, and new unit economics that are hitting hurdles in new markets. 

The roll-out of infinite kitchens in FY24 and beyond, according to the analyst, could become a transformational driver of SG's margins.

Photo via Domino's Pizza