DJ A Vaccine Helps Starbucks and Shake Shack Stock, but Only One Is a Buy -- Barrons.com

By Teresa Rivas

Restaurants as a whole have had to shift their strategies during the Covid-19 pandemic, and those centered in big cities have often been among those hit hardest. Facing fewer office workers and tourists -- and with most lacking drive-throughs -- urban locations have seen some of the biggest drop-offs in traffic, when they have been able to open at all.

So in a post-pandemic world, companies with disproportionately high exposure to cities -- like Starbucks (SBUX), Shake Shack (SHAK), and Restaurant Brands International's (QSR) Tiim Horton's chain -- could be among the quickest to recover, notes Stifel's Chris O'Cull. While these stocks have moved up recently for precisely that reason, he still boosted his estimates for the companies, writing that a "vaccine could make sales recovery less of a myth."

O'Cull writes that while a vaccine will go a long way toward helping a recovery in urban centers, three main questions remain: Will remote work remain popular, how quickly will travel begin again, and could the closure of independent restaurants be permanent, reducing competition.

At this point, the answers to those questions remain unknown, but it's clear that in recent months, even with many restrictions lifted, traffic in urban centers remains depressed. Traffic is likely to continue trending down, given the recent spike in cases and concern about spread during the winter months.

However, O'Cull does note that reduced competition from independent rivals does seem very likely to come to fruition -- to the benefit of bigger players -- "providing an opportunity to meaningfully consolidate market share as customers return to core business districts and establish new routines."

This optimism leads him to raise his same-restaurants sales projections and earnings estimates for all three companies. The analyst boosted his price targets for each as well, for Starbucks to $108 from $100; Shake Shack to $70 from $65; and Restaurant Brands to $65 from $62.

He has Buy ratings on Starbucks and Restaurant Brands, but kept a Hold rating on Shake Shack. "While we believe Shake Shack could see the most pronounced unit volume recovery, this appears to be largely priced into shares," he writes. Of the three he thinks Starbucks has the "greatest potential to outpace expectations longer-term."

O'Cull sees better days ahead for casual dining stocks too.

Write to Teresa Rivas at teresa.rivas@barrons.com

(END) Dow Jones Newswires

November 20, 2020 11:14 ET (16:14 GMT)

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