ICR Announces Analysts’ Top Restaurant Stock Picks for the 2017 ICR Conference
Alex Slagle of Jefferies Recognized for Selecting Best Restaurant Stock Pick of 2016
New York, NY – January 9, 2017 – ICR, a leading strategic communications and advisory firm serving over 500 private and public company clients, today announced the top picks for its 2017 Best Restaurant Stock Pick Competition and recognized Alex Slagle of Jefferies as the winner of its 2016 Best Restaurant Stock Pick Competition. The 2017 selections were made by leading sell-side equity research analysts ahead of the ICR Conference 2017, beginning today through Jan. 11th at the Grande Lakes Resort in Orlando, Florida, home to the JW Marriott and Ritz-Carlton hotels.
The ICR Conference, valued for its unique and dynamic format, provides a forum for executives to network, discuss industry trends and share their strategies at the beginning of the New Year. Attracting more than 2,300 overall attendees, the three day event features main stage presentations, followed by smaller question and answer breakout sessions.
“We are excited to welcome over 45 of the top private and public restaurant companies to our event this year. In addition to hearing from these industry leaders, the ICR Best Restaurant Stock Pick Competition is an annual tradition that restaurant industry attendees and ICR Conference sponsors look forward to every January,” said Tom Ryan, Chief Executive Officer, ICR. “We are pleased to congratulate Alex Slagle of Jefferies for the best pick of 2016 with his selection of Jack in the Box (NASDAQ: JACK). JACK rose 37.5 percent and beat the S&P 500, which increased 7.2 percent over the same period.”
The participating analysts’ predictions for the 2017 Best Restaurant Stock Pick Competition include:
- Buffalo Wild Wings, Inc. (NASDAQ: BWLD) – Matt DiFrisco, Guggenheim Securities, LLC, “2017 is setting up to be a year of greater growth with a return to positive SSS and margin leverage cultivated from efficient labor usage. In our opinion, the easiest SSS compares in the brand’s history and operational momentum will be supported by a favorable football schedule: 5 additional 1Q17 bowl games, non-election year TV ratings and a 53rd operating week during 4Q17. Of note, post-election NFL ratings turned positive in Week 14 sustaining that momentum into Week 15. We reiterate our $188 price target and anticipate positive SSS leading to improving sentiment. BWLD targets a 20% Restaurant Margin in 2018 through reductions in relative COGS, labor, and operating expenses. We model a 19.2% Restaurant Margin in 2017 with 50bps of labor leverage based on the company adopting efficient franchisee labor strategies, including lunch counter service. During the August Analyst Day, management highlighted 4 SSS drivers: Lunch, Takeout/ Delivery, Value and Loyalty giving tangible progress updates. In our opinion, these categories should differentiate BWLD and if executed, meaningfully reverse the negative 2016 SSS compares. Lastly, the involvement of an activist and the addition a new CFO give us optimism with regards to ROIC analysis, capital allocation and leverage given the potential for a higher franchise mix.”
- Dave & Buster’s Entertainment, Inc. (NASDAQ: PLAY) – Andy Barish, Jefferies, “Our favorite new unit growth story with an underappreciated, differentiated brand and business model with no real direct competitors. We expect this to work to PLAY’s advantage as we move later in the cycle, which along with continued focus on new, proprietary games/amusements backed by marketing, should drive growth and broad-based brand awareness to support incremental SSS and margin leverage on 50%-60% flow-through. New unit growth of 10%+ has been very productive as well.”
- Dave & Buster’s Entertainment, Inc. (NASDAQ: PLAY) – Sharon Zackfia, William Blair & Company, LLC, “With about half of its revenue stemming from games, Dave & Buster’s has an inherently experiential nature that has been a strong driver of same-store sales gains and traffic well ahead of the industry average over the past several years. We expect this momentum to continue in 2017, with the company’s comps potentially poised to accelerate against easing comparisons while yielding double-digit earnings growth with potential upside. We also believe the stock valuation remains palatable with room for expansion given the company’s differentiated concept, strong sales momentum, and opportunity to more than double the unit base.”
- Habit Restaurants, Inc. (NASDAQ: HABT) – Paul Westra, Stifel, “We are impressed by HABT’s segment-leading unit-growth potential and encouraged by likely above-peer comps going into 2017. At this stage, we are bullish on (1) HABT’s concept positioning, which we believe is representative of an up-and-coming “second wave” of quick-casual restaurants that are destined to dominate the restaurant landscape over the next 30 years, characterized as single-product-line specialist concepts capable of delivering the “Big-Three Outputs” that we believe are absolutely required for any restaurant brand in any category to achieve a structural competitive advantage: which are high sales mix percentages of “dinner, dine in, and female/ family guests;” and (2) HABT’s company story, where we view management as one of the most capable, operations-focused teams, and believe that management is successfully embedding an inclusive “how company” culture within today’s “how economy.”
- Habit Restaurants, Inc. (NASDAQ: HABT) – Nick Setyan, Wedbush, “We expect comp outperformance relative to lowered 2017 expectations and less non-wage labor expense headwinds than in 2016 to lead to unit-level margins >20%, above current consensus. We also expect resumption in G&A leverage and healthy new unit sales volumes. As upward comp and EPS revisions materialize in the quarters ahead, we expect an upward revaluation of shares to better reflect Habit’s industry-leading growth metrics.”
- Panera Bread Company (NASDAQ: PNRA) – Jeff Bernstein, Barclays, “Panera Bread remains our top pick in the restaurant industry. We believe Panera is poised to deliver outsized comp (and EPS) growth in 2017 relative to the broader industry, led by the execution of its fundamental turnaround strategy. Panera 2.0 is a complete overhaul of the consumer-facing model through digital and operational enhancements. Fundamentals are at an inflection point, with comps outsized and 2.0 transition / support costs beginning to crest. Otherwise, short-term strategic initiatives (leverage, share repo, refranchising, and G&A reduction) provide near-term EPS and valuation support, resulting in a favorable risk-reward.”
- Panera Bread Company (NASDAQ: PNRA) – Andrew Charles, Cowen and Company, “With Panera 2.0 effectively implemented across the company base, investor attention has turned to the implementation of delivery, which our delivery model suggests will annually contribute ~1-2% same store sales and 2-3% to EPS growth through 2020 to lead to upside vs Street est. Upside to EPS can be derived by Panera finding success minimizing start-up costs and labor associated with delivery, as was the case with 2.0 that found greater cost efficiencies in later iterations with lower sales lifts. Additionally, we believe opportunities to further return cash to shareholders beyond what has been announced offers downside protection below 25x, or $190 based on 2017E. We view Panera as the only stock under our coverage to fit both of our investment themes of using guest-facing technology as well as transparent food sourcing.”
- Panera Bread Company (NASDAQ: PNRA) – Alex Slagle, Jefferies, “We think PNRA can be a good counter-cyclical stock and perform well at a time when the rest of the restaurant industry could be facing a re-set in growth as the broader industry growth cycle comes to a close. PNRA has now already gone back to re-build its SSS drivers, built its digital infrastructure, and laid the groundwork for its next multi-year growth run. We see operating margins bottoming at 9% vs. the previous peak of over 13%, as SSS improve and most of the incremental cost load from recent investments is now on the books. Our PT is $245 PT is based on 13x ’17 EBITDA, which is inline or a slight discount to its mid-to-large cap peers in the fast-casual/limited-service categories.”
- Panera Bread Company (NASDAQ: PNRA) – Nicole Miller Regan, Piper Jaffray, “We maintain our positive outlook on Panera and are highlighting the company’s shares as a focus name for 2017. We believe the company’s balanced focus on human capital and structural brand investments over recent years help it to continue its transition from recovery to growth mode. We estimate an incremental step up in earnings growth towards what we believe can ultimately be near 2x earnings growth by FY19. Longer-term, we continue to believe brand modernization efforts position the company to drive consistent restaurant-level performance and that early stage CPG and digital ordering efforts can drive ancillary earnings benefits.”
- Red Robin Gourmet Burgers, Inc. (NASDAQ: RRGB) – Brian Vaccaro, Raymond James, “Our top pick in 2017 is Red Robin which we view as materially undervalued with significant opportunities to improve four-wall execution (kitchen display systems, improved throughput) and build off-premise sales (currently well below peers) in 2017 and beyond. We also believe the company has a strong management team further bolstered by two key hires in 2016 (Carin Stutz as COO and Guy Constant as CFO) with demonstrated success executing these same initiatives at other concepts. Combined with the stock’s significant discount valuation to peers (EV/EBITDA ~7x vs. peers 8-10x), we believe Red Robin is poised to outperform in 2017. We also expect the company to generate significant free cash flow in 2017 (current FCF yield ~9%) which should limit downside risk from current levels.”
The best stock picks of 2016 as selected by leading sell-side equity research analysts ahead of the 18th Annual ICR Conference in January 2016 were BJ’s Restaurants Inc. (NASDAQ: BJRI); Buffalo Wild Wings (NASDAQ: BWLD); Chipotle (NYSE: CMG); El Pollo Loco (NASDAQ: LOCO); Fiesta Restaurant Group Inc. (NASDAQ: FRGI); Jack in the Box (NASDAQ: JACK); Panera Bread Company (NASDAQ: PNRA); and Zoe’s Kitchen, Inc. (NYSE: ZOES).
About The ICR Conference
The ICR Conference is a unique platform where public and private company management teams, institutional investors, sell-side research analysts, investment bankers, private equity professionals and select media connect with one another with the goal of understanding consumer trends and public company prospects as the year begins. The event is one of the largest investment conferences of the year, featuring presentations by more than 150 public and private companies, with attendance regularly exceeding 2,300. For more information please visit http://www.icrconference.com
Established in 1998, ICR partners with companies to optimize transactions and execute strategic communications programs that achieve business goals, build credibility and enhance long-term enterprise value. The firm’s highly differentiated service model, which pairs capital markets veterans with senior communications professionals, brings deep sector knowledge and relationships to more than 500 clients in approximately 20 industries. Today, ICR is one of the largest and most experienced independent communications and advisory firms in North America maintaining offices in New York, Norwalk, Los Angeles, Boston, San Francisco, Hong Kong and Beijing.
Julia Young / Christine Beggan