September 14, 2018 / 2:55 PM / in 2 months

BUZZ-Restaurants: RBC leans neutral, steps to sidelines on Dunkin' Brands

** “Our sector outlook is reaching a more neutral level (versus our neutral-to-positive view previously) largely as a result of more full domestic company valuations (especially casual dining),” writes RBC analyst David Palmer in research note

** Palmer downgrades Dunkin’ Brands to “sector perform” due to valuation, though sticks with $75 PT saying anticipates accelerating sales in near-term

** Says among favorite names, Restaurant Brands remains “very best pick” through 2019, citing Tim Hortons Canada turnaround as biggest catalyst over next 2-3 qtrs. Maintains $72 PT

** Raises PTs on several “outperform” rated stocks: Darden Restaurants ($115 to $128), Texas Roadhouse ($68 to $78), Brinker International ($49 to $53) and Yum! Brands ($88 to $95)

** But Palmer says surprised by subdued US fast food industry SSS growth so far this qtr (~2 pct) given strength of consumer and growth among casual dining and retail peers

** Notes that McDonald’s (“outperform”, $175 PT) and Wendy’s (“sector perform, $18 PT) particularly struggling as burger chains pursue national value strategies with mixed success

** And with Chipotle shares having doubled since Feb hiring of Brian Niccol as CEO and now trading at 40x his 2019 EPS estimate, says staying on sidelines with $450 PT

** In 2018, the S&P 500 Restaurants sub index is off marginally, while the S&P Mid Cap Restaurants sub index has gained 19 pct

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