Wunderlich Adjusts Targets On Restaurants

Wunderlich commented on restaurants Tuesday and noted that shares of “most restaurant companies closed out 2014 on a strong note, and following a very good year in 2013. The improving U.S. economy, jobs growth, and consumer confidence, buoyed by the late 2014 tailwind of declining energy and gas prices, proved a compelling catalyst for restaurant stock prices.”

According to analyst Robert M. Derrington, during 4Q14, “on average the 37 restaurant stocks we track appreciated 16 percent, ending the year up 12 percent on average and following an unweighted average gain of 48 percent in 2013.”

Due to concerns about valuation, the firm downgraded Brinker International, Inc. (NYSE: EAT) and Panera Bread Co (NASDAQ: PNRA) from Buy to Hold.

Its favorite names remained Jack in the Box Inc. (NASDAQ: JACK), Red Robin Gourmet Burgers, Inc. (NASDAQ: RRGB) and Sonic Corporation (NASDAQ: SONC), each of which were reiterated as a Buy.

For Jack in the Box, the firm raised its price target from $88 to $102 as Derrington believed “JACK's operating momentum remains strong, especially for its Qdoba brand, with SSS of both likely to be aided by low gas prices, and adding further upside potential to our FY15 and FY16 estimates.”

For Red Robin, the firm raised its price target from $76 to $92. “We believe management's 2015 plan — including its accelerating brand transformation remodels, upgrading its kids' programs, adding signature add-ons and burger-centric menu innovations, expanded tiered pricing and its movie theatre promotional tie-ins — together add confidence and upside potential to our estimates.”

Sonic’s price target was raised from $33 to $36 and the firm believed that “Sonic's momentum also remains strong and likely to increase as the rollout of POPS/ICE sales-driving technology expands, its pipeline of new menu items grows, and traffic remains strong — together adding upside to our FY15 and FY16 revenue, SSS and EPS estimates.”

Buffalo Wild Wings (NASDAQ: BWLD) was reiterated as a Buy and the price target was raised fron $185 to $208. Derrington believed “the combination of the company's steady double-digit unit development, mid-single digit SSS, and the improving 2015 outlook for poultry production appears poised to drive upside to our B-dubs revenue, SSS, margin and earnings estimates.”