Dutch Bros added to best-ideas list while Chipotle and Wendy’s draw downgrade to neutral at Wedbush

Dutch Bros management “has focused on a number of company-specific transaction drivers: throughput, rewards, marketing, store manager bonus structure, etc. that we believe are in the very early innings,” analyst Nick Setyan said.

Dutch Bros’ stock was up by 2.2% on Thursday.

Wedbush also upgraded Cheesecake Factory Inc.
CAKE,
+1.41%
and Cava Group Inc.
CAVA,
+3.26%
to outperform from neutral.

Cheesecake Factory’s stock rose 2.8% and Cava’s moved up by 4.4%.

Cheesecake Factory’s same-store-sales growth estimates appear to be realistic, while the company’s margin trajectory and “compelling” cash-on-cash returns are underappreciated, Setyan said.

“We are also hopeful that a declining interest rate environment will alleviate the outsized pressure on its valuation,” he said.

For Cava, Wedbush is forecasting another quarter of upside over its “conservative” profit outlook.

“While we view lower grocery inflation as an incremental threat to the fast casual category in 2024, we also believe [Cava’s] relative value
proposition and maturation cycle contribution to comp positions it to overcome the incremental headwind,” Setyan said.

Wedbush also downgraded Chipotle Mexican Grill Inc.
CMG,
-0.38%
and Wendy’s Co.
WEN,
-0.40%
to neutral from outperform.

Chipotle’s and Wendy’s stock each fell 0.3%.

Wedbush cited slowing transaction growth at Chipotle for the downgrade.

Meanwhile, Wendy’s positioning as a premium quick-serve restaurant is “at risk” due to the increasingly value-oriented environment in the fast-food sector, analysts said.

Wedbush also cited competition from grocery-store meals, which have been coming down in price as inflation moderates.

“We expect restaurants’ unfavorable gap versus grocery to continue,” Setyan said.

Also read: Dutch Bros says it has no plans to raise prices this year, and stock falls