Baird downgrades Chipotle, Domino’s as restaurant divergence widens

Investing.com -- In a note to clients on Monday, Baird reshuffled its restaurant coverage, downgrading Chipotle Mexican Grill (NYSE: CMG), Domino's Pizza (NASDAQ: DPZ) and Black Rock Coffee Bar (NASDAQ: BRCB) to Neutral while upgrading Darden Restaurants (NYSE: DRI) to Outperform.

"Divergence is the trade as environment amplifies gap," analyst Chris O'Cull wrote, arguing that difficult conditions magnify competitive differences and let brands with compelling value, relevant marketing and strong execution take traffic and share.

On Chipotle, Baird cut its price target to $40 from $44, saying greater reinvestment and therefore slower margin recovery will be needed to generate low-single-digit comparable sales versus the mid-single-digit growth achieved historically.

"Put simply, CMG may need to spend more to grow less," the firm wrote.

Domino's moved to Neutral with an unchanged $350 target, with Baird seeing shares near fair value and no catalyst for meaningful multiple expansion.

Black Rock Coffee Bar was cut to Neutral with a $10 target from $12, despite attractive unit economics, on concerns over an increasingly competitive landscape.

Darden was lifted to Outperform with a $250 target, up from $220, with Baird describing it as a core casual dining holding with reliable top-line drivers and a durable growth algorithm.

The firm also initiated coverage of Brinker International (NYSE: EAT) and Jersey Mike's at Outperform. Its highest-conviction picks are Cava (NYSE: CAVA), Brinker, Starbucks (NASDAQ: SBUX) and Dutch Bros (NYSE: BROS).

You May Also Be Interested In

• General Dynamics wins $54 million Army contract
• Analyst calls MU, SNDK pre-market drop on CXMT Apple report an overreaction
• Broadcom credit risk measures rise amid AI financing deals