Raymond James upgraded shares of Brinker International (NYSE:EAT) and First Watch Restaurant (NASDAQ:FWRG) to Strong Buy from Outperform in a note Wednesday, previewing third quarter earnings for restaurant stocks.
Analysts told investors restaurant stocks have significantly underperformed in the last three months as investors struggle to get their
arms around a growing list of concerns.
However, the firm sees EAT as a Strong Buy due to third-party data suggesting upside potential to F1Q24 expectations. However, they lowered the price target on the stock to $40 from $45 per share.
The return to TV advertising for EAT seems to drive strong comp outperformance, noted the analysts. The firm expects "Chili's absolute traffic performance to show strong improvement beginning F2Q24 (Dec) as lap reduction in "unhealthy" discounts in Oct/Nov '22. Attractive valuation."
While Raymond James acknowledges the company's "above-average balance sheet leverage," they feel it has "sufficient flexibility to navigate next tranche of notes maturing in October '24."
FWRG has an "under-appreciated quality growth story at [an] attractive valuation," according to the analysts. The firm feels it can "sustain solidly positive comps assuming we avoid meaningful recession."
The FWRG price target was cut to $22 from $24 per share, but Raymond James believes the company is a "scaled leader in [a] rapidly growing brunch/daytime cafe segment," the analysts added.