The restaurant industry's third-quarter results should show a "healthy" move away from discounting, and selective stocks within the group are particularly well-positioned, an analyst at SunTrust Robinson Humphrey said.
Analyst Jake Bartlett in Boston affirmed buy ratings on five stocks: Chipotle (CMG) - Get Report , Jack in the Box (JACK) - Get Report , Noodles (NDLS) - Get Report , Shake Shack (SHAK) - Get Report and Carrols (TAST) - Get Report .
Within the group, he increased his price target on Chipotle, the Newport Beach, California, burrito chain, to $920 from $900. And he cut estimates on Jack In The Box and Shake Shack, the burger chains based in San Diego and New York, respectively.
Bartlett isn't expecting the third-quarter results to prompt major changes in the investment climate for restaurants, which he said "has been driven in large part by macro concerns."
At Chipotle, he's estimating that third-quarter same-store sales were better than expected, and he's expecting strong fourth-quarter sales guidance.
On the menu, he said the September national launch of carne asada has both brought in more customers and created bigger checks at the cash registers.
He has turned a bit more cautious about Jack In The Box, "due to a relative lack of innovation."
Earlier on, the company's spicy chicken strips and BBQ bacon double cheeseburger lifted same-store sales. The potential introduction of tiny tacos may help going forward, but he wants to see more interesting offerings.
At Noodles, the Broomfield, Colorado, fast-casual noodles, pasta, soups and salads chain, Bartlett is looking for "another strong quarter, providing further evidence of [a] solid recovery."
One concern: The potential that private-equity funds that back the company will sell shares is holding back the multiple. But "patience will be well rewarded," the analyst wrote.
At Shake Shack, the biggest risk to recent same-store sales momentum is its transition from the for-delivery partners it has worked with for almost two years to just GrubHub. He's also a bit concerned about beef costs, which spiked in August and have eased back.
And at Carroll's, the Syracuse, New York, operator of Burger King restaurants, he said, "We would be buyers ahead of third-quarter 2019 results."
Bartlett sees strong same-store sales, arising particularly from the chain's Impossible Whopper. That's its flagship burger made from the plant-based recipe at Impossible Foods, the closely held Redwood City, Calif., company.
Separately, Bank of America Merrill Lynch analyst Gregory Francfort upgraded Chipotle to neutral and raised his price target on the stock to $850 from $590.
"Strong sales momentum, aided by the launch of carne asada and normalizing avocado prices, alleviate our near-term earnings-per-share concerns," the analyst wrote.
In trading on Friday, Chipotle was trading up 2% at $845.80; Jack in the Box was off 0.7% at $85.75; Noodles slipped 1.5% to $5.11; Shake Shack rose 0.9% to $92.56, and Carrolls eased 0.3% to $7.30.