Goldman Sachs analyst Christine Cho initiated coverage of Sweetgreen with a Buy rating and $39 price target. The analyst initiated coverage of the restaurant sector with a “selectively constructive” view. The firm is less worried about a pullback in the restaurant spending given a “still-healthy “spending outlook and more lasting behavior shifts post-Covid. However, strong pricing tailwinds are beginning to fade and value competition is stepping up as we come out of the post-pandemic inflation surge, the analyst tells investors in a research note. Goldman says this means that traffic and unit growth will become an increasingly important part of the restaurants’ growth equation. It recommends focusing on concepts that could drive healthy traffic growth with unique brand proposition and differentiated offerings, or concepts with a path for accelerated unit growth. Goldman’s top idea is Chipotle Mexican Grill (CMG), its most “out of consensus Buy” is Starbucks (SBUX), and its best small-cap ideas are Sweetgreen (SG) and Shake Shack (SHAK). The firm’s Sell ideas are Jack in the Box (JACK) and Wendy’s (WEN), saying scale increasingly matters in a tougher competitive environment and that it sees multiple challenges for both in view of lower income consumer uncertainties and intensifying value competition. The analyst sees a balanced risk/reward for Neutral-rated McDonald’s (MCD) given near-term risks from its national $5 value menu launch.
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