Morgan Stanley downgraded Brinker International (NYSE:EAT) to Underweight (From Equal-weight) and set a 12-month price target on company shares at $36.00.
Stock strength at the end of 2023 benefited the casual dining sector. However, analysts at Morgan Stanley see less attractive risk-reward potential for EAT at the moment, writing, “patience is still required for turnaround story to play out.”
Similar to CAKE, Morgan Stanley is anticipating challenges for EAT in 2024 compared to the overall industry, with modest same-store sales and pricing power making it difficult to offset cost inflation and expand margins.
“We are supportive of the strategy under new management, and think is it thoughtfully calibrated for the long term, but in the near term brand position and differentiation in the promotional bar & grill category may be a headwind.” analysts wrote in a note.
Morgan Stanley also cut Sweetgreen, Inc. (SG) to an Underweight rating (From Equal-weight), setting a 12-month price target of $10.00 on the company’s shares.
Analysts have a positive outlook on the SG brand, but they note that the sales recovery after Covid has been slower compared to industry leaders. This trend is expected to persist, and with the focus on the automated Infinite Kitchen format and slower unit growth, the investment proposition becomes more uncertain.
The business is still unprofitable and no longer growing faster than its peers. Valuing the stock is challenging, and the narrative may increasingly hinge on the success of the Infinite Kitchen rollout, raising long-term questions.
Shares of EAT and SG are down 0.26% and 6.67% respectively in afternoon trading on Tuesday.