On Thursday, TD Cowen maintained a Market Perform rating on Sweetgreen Inc (NYSE:SG) but increased the price target to $17.00 from the previous $15.00. This adjustment follows the company's fourth-quarter earnings release, which revealed several positive developments, although the analyst expressed concerns about the stock's rapid ascent.
Sweetgreen's recently announced earnings showed promising trends, particularly in terms of restaurant-level margin guidance, which was set between 18.0% and 19.5%. This projection is notably 50 basis points higher than the pre-release consensus at the midpoint.
The updated guidance supports management's ambitions for a 20% restaurant margin in the medium term, pending a full recovery in sales volumes.
In response to the earnings report, TD Cowen has revised its 2024 estimated restaurant margin for Sweetgreen to 19.5%, up from 19.0%. This figure contrasts with the 18.9% consensus from Consensus Metrix. The guidance suggests that Sweetgreen could see leverage of 80 to 230 basis points in 2024 compared to 2023, even after accounting for a one-time benefit of $1.8 million, or 30 basis points, from employee retention credits in the first quarter of 2023.
The analyst's outlook on Sweetgreen takes into consideration the robust margin guidance and potential for achieving the higher end of projections.
The Market Perform rating reflects a balance between the immediate positive factors and the variables that could affect the company's performance in the longer term. Sweetgreen's stock price surged by 46% following the earnings report, a move that the analyst views as possibly overextended given the current assessment.
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