Stifel analysts have adopted a cautious stance on U.S. restaurant stocks, citing recent market fluctuations and subdued consumer spending as key concerns.
In a recent client note, Stifel emphasized that restaurant stocks tend to struggle during economic downturns. The analysts highlighted historical trends, such as mid-teens annual earnings revisions and significant valuation compressions—up to 55%—observed during the 2007-2009 financial crisis. These challenges underline the sector’s vulnerability during times of economic stress.
Although Stifel did not forecast an imminent recession, the firm acknowledged an increasing likelihood of one. In light of this, Stifel revised its estimates for several restaurant companies, warning that stocks in the sector could face more than 30% downside risk if historical recession trends hold true.
However, not all companies are expected to be equally affected. The analysts noted that companies with strong sales momentum and emerging brands with potential for earnings per share (EPS) growth could outperform in a downturn. On the other hand, Stifel recommended avoiding companies attempting turnarounds or those facing slowing growth.
Among the restaurant stocks covered, Stifel singled out Domino’s, Dutch Bros (NYSE: BROS), and CAVA Group (NYSE: CAVA) as favorable investments. CAVA, in particular, was rated as a “Buy” with a stock price of $88.33 at the time of the note, thanks to its robust sales momentum and unique sales drivers, making it a potentially resilient choice during tough economic times.
This analysis aligns with a recent positive outlook from Bank of America, which initiated coverage on CAVA and issued a “Buy” rating with a price target of $112. Bank of America highlighted the Mediterranean fast-casual restaurant chain as a “value compounder” with strong growth potential.
As the restaurant industry faces uncertainty, CAVA Group (NYSE: CAVA) stands out as a promising investment, buoyed by strong market performance and positive analyst sentiment.
Maria Reed is a financial journalist with a passion for covering US equities. She joined the ABBO News team in June 2023. Maria holds an M.S. degree in International Economics and Finance from Otto-von-Guericke University in Magdeburg and is a CFA Level 2 candidate. Read Full Bio
