The Restaurant Sector Q2 Earnings Cheat Sheet

Previewing second-quarter earnings of the restaurant sector, Raymond James said it continues to maintain a cautious/selective stance towards its restaurant universe, given soft industry sales trends and various industry and broader macro and consumer factors reducing visibility.

The firm noted that the restaurant stocks underperformed the broader indexes in the second quarter.

"Short interest levels remain very high with more than 50% of restaurant stocks we track above 10% of the float and several above 15%," the firm added.

Top Picks

Analyst Brian Vaccaro said his top long ideas into the second quarter earnings season are Red Robin Gourmet Burgers, Inc. (NASDAQ: RRGB) and Carrols Restaurant Group, Inc. (NASDAQ: TAST). The analyst said comp improvement and more details on second-half margins from Red Robin could create another squeeze from current depressed valuation.

Raymond James prefers Carrols Restaurant, as it views it to be attractive on a pullback and believes the core long-term consolidation thesis is intact.

Upgrading Chuy's

The firm upgraded shares of Chuy's Holdings Inc (NASDAQ: CHUY) from Market Perform to Outperform on two premises. The firm believes the stock's sharp pullback creates an attractive entry point. Additionally, the firm is of the view that a reduction to the 2017 estimates has already been factored in at current levels.

Staying At Underperform On Chipotle

Raymond James reiterated its Underperform rating on the shares of Chipotle Mexican Grill, Inc. (NYSE: CMG), believing the stock could hit new lows if comps disappoint over the next couple of quarters. The firm also noted that its 2018 earnings per share estimate of $9.52 for the company remains well below the consensus estimate of $12.06.

Lowering Estimates

Vaccaro said his estimates for Buffalo Wild Wings (NASDAQ: BWLD) and Brinker International, Inc. (NYSE: EAT) go materially lower. That said, the analyst thinks a weak showing is already discounted for by the market, given the pullback in both stocks in recent months.

However, for Chuy's, Del Frisco's Restaurant Group Inc (NASDAQ: DFRG), Ruth's Hospitality Group, Inc. (NASDAQ: RUTH) and Carrols Restaurant, the firm reduced its estimates only slightly.

Expectations, Alphabetically

• Bloomin' Brands Inc (NASDAQ: BLMN): Likely to sustain positive comps, resulting in multiple expansion.
• Carrols Restaurant: Favorable set up going into Q2 reporting season.
• Cheesecake Factory Inc (NASDAQ: CAKE), Brinker and Buffalo Wild Wings: Likely to miss expectations and/or lower guidance.
• Dave & Buster's Entertainment, Inc. (NASDAQ: PLAY): To report solidly positive comps, while management's conservative 2017 guidance provides scope for continued stock outperformance.
• McDonald's Corporation (NYSE: MCD): Likely to report strong absolute results.
• Red Robin: Favorable set up going into Q2 reporting season.
• Texas Roadhouse Inc (NASDAQ: TXRH): Likely to report strong absolute results.

Sales Trends

• Full service industry comps: Down about 1 percent.
• Casual dining comps: Down about 1 percent.
• Fast casual segment comps: Down 4.6 percent according to Knapp Track.
• High-end steakhouse category: Comps up 0.4 percent and traffic down 0.5 percent.
• Quick-service segment: Modestly positive comps, although sales could have slowed in June.

Ratings, Alphabetically

• Bloomin' Brands: Reiterated Outperform rating.
• Brinker: Maintained at Market Perform.
• Buffalo Wild: Maintained at Market Perform.
• Carrols Restaurant: Reiterated Strong Buy rating.
• Cheesecake Factory: Maintained at Market Perform.
• Chipotle: Reiterated Underperform rating.
• Chuy's: Upgraded from Market Perform to Outperform.
• Darden Restaurants, Inc. (NYSE: DRI): Maintained at Market Perform.
• Dave & Buster's: Reiterated Outperform rating.
• Del Frisco's: Reiterated Outperform rating.
• DineEquity Inc (NYSE: DIN): Maintained at Market Perform.
• Fiesta Restaurant Group Inc (NASDAQ: FRGI): Maintained at Market Perform.
• Habit Restaurants: Reiterated Outperform rating.
• Kona Grill Inc (NASDAQ: KONA): Maintained at Market Perform.
• McDonald's: Maintained at Market Perform.
• Red Robin: Reiterated Strong Buy rating.
• Ruth's Hospitality: Maintained at Market Perform.
• Texas Roadhouse: Maintained at Market Perform.

Price Targets, Alphabetically

• Bloomin' Brands: $25.
• Carrols Restaurant: $17.50.
• Chuy's: $29.
• Dave & Buster's: $77.
• Del Frisco's: $20.
• Habit Restaurants: $22.
• Red Robin Gourmet: $85.

Earnings Dates, Chronologically

• Del Frisco's: July 21, before the market open.
• Kona Grill: In the week of July 24–28*.
• McDonald's: July 25, before the market open.
• Chipotle: July 25, after the market close.
• Bloomin' Brands: July 26, before the market open.
• Buffalo Wild Wings: July 26, after the market close.
• Ruth's Hospitality: July 28, before the market open.
• Texas Roadhouse: July 31, after the market close.
• Chuy's: In the week of July 31–August 4*.
• Habit Restaurants: In the week of July 31–August 4*.
• DineEquity: August 2, before the market open.
• Cheesecake Factory: August 2, after the market close.
• Carrols Restaurant: In the week of August 7–11*.
• Fiesta Restaurant: In the week of August 7–11*.
• Red Robin: In the week of August 7–11*.
• Brinker International: August 10, before the market open.

*tentatively scheduled

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