The Ratings Game Archives | Email alerts

April 2, 2020, 11:43 a.m. EDT

Domino’s Pizza, Papa John’s to benefit from coronavirus-related restaurant closures, analysts say

The National Restaurant Association says 3% of restaurants have already permanently closed

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Domino's Pizza Inc. (DPZ)
  • X
    Papa John's International Inc. (PZZA)
  • X
    S&P 500 Index (SPX)

or Cancel Already have a watchlist? Log In

By Tonya Garcia, MarketWatch


Bloomberg
Domino’s Pizza could gain market share as smaller pizza operators shutter for good due to the coronavirus pandemic

Domino’s Pizza Inc. and Papa John’s International Inc. will benefit most from the flood of restaurant closures that will likely result from the coronavirus pandemic, BTIG said.

Many restaurants across the U.S. are currently closed except for takeout and delivery due to social distancing guidelines.

Small businesses, including restaurants, are vulnerable to these widespread dining room closures, with many owners lacking the funds to wait out the pandemic.

According to a report from the National Restaurant Association, 3% of restaurants have already closed permanently. Another 11% anticipate closure in 30 days.

President Donald Trump has extended social distancing guidelines through April 30.

Watch: How to pick restaurant stocks that could survive the looming crisis

“We expect independent restaurants to cede market share to chains as a result of coronavirus,” wrote BTIG analysts led by Peter Saleh. “We believe this dynamic could be most pronounced in the pizza space, accelerating an existing trend, given its fragmented nature where independents account for roughly half of sales.”

Independent owners represent 52% of sales in the pizza category.

“This fragmented market is in stark contrast to quick service categories including hamburger, Mexican, sandwich and chicken in which major chains account for the vast majority of the category, leaving them little to gain from smaller operators, and there is often a dominant concept with a 30%-to-40% share,” BTIG said.

Many independent pizza restaurants have delivery capabilities, but rely on dine-in for a chunk of their business. Independent operators represent 35% to 45% of overall restaurant sales, according to data cited by BTIG.

“Additionally, we expect consumers to shift their purchasing habits toward value offerings and bundles as the economy heads into a likely recession,” BTIG said.

BTIG rates both Domino’s /zigman2/quotes/201587798/composite DPZ +3.32%   and Papa John’s /zigman2/quotes/207343722/composite PZZA +0.15%   stock buy with a $405 price target on the former and $75 price target on the latter.

Read: Coronavirus pandemic driving sales of small appliances for cooking, health and wellness

Domino’s stock has rallied 34.2% over the past year. Papa John’s shares have gained 4.2%. The S&P 500 Index /zigman2/quotes/210599714/realtime SPX +1.05%   has tumbled 12.6% for the period.

Raymond James’ healthcare policy analyst Chris Meekins thinks there’s an 80% chance that “we begin to turn a corner” after July 4. With that in mind, fellow analysts led by Brian Vaccaro upgraded Olive Garden parent Darden Restaurants Inc. /zigman2/quotes/200092615/composite DRI +1.05%   to strong buy and Chuy Holdings Inc. /zigman2/quotes/209876692/composite CHUY +3.20%  to outperform. Analysts think liquidity concerns are “overdone.”

Analysts have a $65 price target for Darden and $14 for Chuy.

SunTrust Robinson Humphrey analysts reiterated their buy stock ratings for Chipotle Mexican Grill Inc. /zigman2/quotes/200781108/composite CMG +0.22%   , McDonald’s Corp. /zigman2/quotes/203508018/composite MCD +0.30%   and Wingstop Inc. /zigman2/quotes/206814832/composite WING -0.47%  

SunTrust upgraded Denny’s Inc. /zigman2/quotes/206956394/composite DENN +3.86%   and El Pollo Loco Holdings Inc. /zigman2/quotes/203043086/composite LOCO -1.50%   to buy based on liquidity and their off-premise business. SunTrust has an $11 price target on both stocks.

“We have little insight into the overall financial leverage of franchisees, but note that consolidation over the past five years may have resulted in significant debt,” SunTrust wrote. “However, we expect franchisors and lenders to be flexible with royalty and rent deferrals (Wendy’s, McDonald’s and Restaurant Brands International have already indicated that they will be), and interest payment delays and/or debt restructuring (government agencies are encouraging banks to be flexible).”

Restaurant Brands International Inc. /zigman2/quotes/202094900/composite QSR +1.16%   is the parent company to Burger King and Popeyes Louisiana Kitchen.

Restaurant Brands is also buy rated at SunTrust.

KeyBanc Capital Markets thinks McDonald’s franchisees could receive as much as $2.5 billion in loans, thanks to the passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Also: This part of the $2 trillion coronavirus stimulus package will save you money in your 401(K) and IRA

“[W]e believe highly franchised restaurant businesses will be the biggest beneficiaries of the act and that most operators of these chains are likely to receive generous relief packages from the government,” KeyBanc wrote. “However, large company-owned restaurant systems are unlikely to receive significant support under the new legislation.”

/zigman2/quotes/201587798/composite
US : U.S.: NYSE
$ 398.31
+12.81 +3.32%
Volume: 861,919
July 10, 2020 4:00p
P/E Ratio
38.18
Dividend Yield
0.78%
Market Cap
$15.58 billion
Rev. per Employee
$236,749
loading...
/zigman2/quotes/207343722/composite
US : U.S.: Nasdaq
$ 88.80
+0.13 +0.15%
Volume: 550,626
July 10, 2020 4:00p
P/E Ratio
2,707
Dividend Yield
1.01%
Market Cap
$2.88 billion
Rev. per Employee
$87,407
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,185.04
+32.99 +1.05%
Volume: 2.41B
July 10, 2020 5:09p
loading...
/zigman2/quotes/200092615/composite
US : U.S.: NYSE
$ 72.09
+0.75 +1.05%
Volume: 1.97M
July 10, 2020 4:03p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$9.36 billion
Rev. per Employee
$46,752
loading...
/zigman2/quotes/209876692/composite
US : U.S.: Nasdaq
$ 13.24
+0.41 +3.20%
Volume: 122,507
July 10, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$260.64 million
Rev. per Employee
$44,244
loading...
/zigman2/quotes/200781108/composite
US : U.S.: NYSE
$ 1,118.04
+2.46 +0.22%
Volume: 218,903
July 10, 2020 4:02p
P/E Ratio
93.65
Dividend Yield
N/A
Market Cap
$31.18 billion
Rev. per Employee
$66,644
loading...
/zigman2/quotes/203508018/composite
US : U.S.: NYSE
$ 184.88
+0.55 +0.30%
Volume: 2.71M
July 10, 2020 4:00p
P/E Ratio
24.22
Dividend Yield
2.70%
Market Cap
$137.47 billion
Rev. per Employee
$100,120
loading...
/zigman2/quotes/206814832/composite
US : U.S.: Nasdaq
$ 137.54
-0.65 -0.47%
Volume: 371,851
July 10, 2020 4:00p
P/E Ratio
186.02
Dividend Yield
0.32%
Market Cap
$4.07 billion
Rev. per Employee
$231,741
loading...
/zigman2/quotes/206956394/composite
US : U.S.: Nasdaq
$ 8.87
+0.33 +3.86%
Volume: 1.60M
July 10, 2020 4:00p
P/E Ratio
4.88
Dividend Yield
N/A
Market Cap
$565.10 million
Rev. per Employee
$70,020
loading...
/zigman2/quotes/203043086/composite
US : U.S.: Nasdaq
$ 14.41
-0.22 -1.50%
Volume: 284,049
July 10, 2020 4:00p
P/E Ratio
19.42
Dividend Yield
N/A
Market Cap
$505.84 million
Rev. per Employee
$78,204
loading...
/zigman2/quotes/202094900/composite
US : U.S.: NYSE
$ 55.05
+0.63 +1.16%
Volume: 878,343
July 10, 2020 4:00p
P/E Ratio
23.77
Dividend Yield
3.78%
Market Cap
$25.54 billion
Rev. per Employee
$892,833
loading...

Tonya Garcia is a MarketWatch reporter covering retail and consumer-oriented companies. You can follow her on Twitter @tgarcianyc. She is based in New York.

This Story has 0 Comments
Be the first to comment
More News In
Industries

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.