Bob Evans Farms Upgraded At KeyBanc, Notes Improved Environment And Leadership Structure

Shares of Bob Evans Farms Inc (NASDAQ: BOBE) have seen selling pressure this summer, as the company underperformed the KBCM Restaurant index. The stock has dipped nearly 15 percent since July 1, while the index has only lost around 2 percent.

In a report published Monday, KeyBanc analyst Chris O'Cull upgraded shares of Bob Evans to Sector Weight from Underweight (with no assigned target), citing expectations for restaurant stocks to now outperform as industry-wide sales remain stable, commodity prices are improving and overall sentiment is now "more favorable."

'Choppy' Efforts Ahead?

O'Cull did acknowledge that a sales and margin recovery effort at Bob Evans Restaurants could be "choppy," as the company attempts to improve SRS and profitability while reducing discounts. In addition, sow prices recently increased to the low-to-mid-$50/cwt range (versus $40-$41/cwt in the first quarter), which will result in "minimal" upside potential in the near term.

Related Link: 2 New-Age Restaurant Stocks Stifel Analysts Are Buying

Changes In Management

O'Cull also pointed out recent management changes, which bode well for the company. Specifically, Doug Benham was named to the newly-formed position of executive chair and will oversee the office of the chair, which consists of the CFO Mark Hood, President of BEF Foods Mike Townsley, EVP and Chief Concept Officer John Fisher, and General Counsel and Secretary Colin Daly.

"The leadership change should improve internal management communication and, in our view, also implies progress is being made by the team," O'Cull wrote.

Bottom line, O'Cull stated that investor sentiment toward restaurant stocks should improve, and investors will also seek stocks with limited exposure to international markets. With Bob Evans' stock seeing recent contracted valuations, an overall improved sentiment may limit further "meaningful erosion" in shares.

Image Credit: By Billy Hathorn (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons