Restaurant stocks are trailing the broader market as Q2 gets underway, with rising gasoline prices and softer demand weighing on the group, BofA Securities said Friday in a report.
Same-store sales improved in Q1 despite adverse weather, while early April trends are difficult to interpret because Easter fell earlier this year, typically slowing restaurant traffic, the report said.
Higher fuel costs are squeezing budgets and margins after investors had expected stronger spending helped by tax refunds, BofA said. Restaurants showing steady customer traffic and clear earnings momentum should stand out, the report said.
In coverage of 19 companies, BofA cut its price target on Chipotle Mexican Grill (CMG) stock to $50 from $53, citing adjustments to its long-term earnings model tied to recent stock volatility. The company remains a strong brand with meaningful long-term earnings potential, the report said.
BofA raised its price target on Starbucks (SBUX) stock to $130 from $120. The coffee chain is working to improve store operations and customer service, and these efforts could help stabilize results and support a recovery as the year progresses, the report said.
BofA boosted its price target on Restaurant Brands International (QSR) stock to $74 from $63, pointing to improvements across its major chains. Better marketing and store upgrades, particularly at Burger King, may help drive steadier sales, the report said.
Chipotle shares rose 0.5% in Friday trading, Starbucks fell 0.6%, and Restaurant Brands eased 0.1%.
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