Yum! Brands, Texas Roadhouse stand out in recent restaurant surveys

In recent surveys from UBS and Citi, both Yum! Brands (NYSE:YUM) and Texas Roadhouse (NASDAQ:TXRH) were highlighted as key standouts expected to perform amid uncertain macro conditions.

In a new survey published on Friday, UBS highlighted the high franchisee valuations for Yum! Brands (YUM) restaurants. According to the bank’s analysts, Taco Bell is currently fetching the highest price, followed by McDonald’s (MCD) and Wendy’s (WEN) in the QSR space.

In the broader restaurant universe, Texas Roadhouse (TXRH) was cited as the most rapid-riser in terms of private franchise valuation followed by Krispy Kreme (DNUT). Wingstop (WING) marked the sharpest decline in terms of private franchise multiple. Within the casual dining data set, Buffalo Wild Wings and Texas Roadhouse maintained the largest valuation multiples.

“In addition to being representative of market conditions, we view these valuations as reflective of underlying fundamentals, including brand strength, sales opportunities, margin structure, unit economics, and overall outlook for the business,” equity analyst Dennis Geiger said. “We think such factors are important in considering and driving public valuations, in addition to other influences, including unit growth, franchise ownership, and other corporate or strategic initiatives.”

Overall, the survey is suggestive of the overall health of the brands and the stability of balance sheets, according to Geiger. The private to public valuation gap offers insight into how to consider valuations as well, according to Geiger. He noted that Wingstop (WING) sports the highest valuation gap at over 850%, while Jack in the Box (JACK) has the lowest at about 200%.

Elsewhere, Citi outlined the cost and demand environment amid persistent inflationary pressures to start 2023.

A team of analysts led by Jon Tower noted that labor costs continue to decline to start 2023, easing a key headwind. Additionally, QSR demand remains healthy, though full-service restaurants are seeing some traffic declines. Tower’s team surveyed 153 independent restaurant operators across the US and noted that only 12% of respondents indicated waning demand was a key issue.

“A broadly positive read on demand largely confirms what we heard during 4Q earnings but continues to suggest less opportunity for share gains from independents,” Tower wrote.

He cited Yum! Brands (YUM), Texas Roadhouse (TXRH), Chipotle Mexican Grill (CMG), and First Watch Restaurant Group (FWRG) as favorites in the restaurant space. The group also retained a positive opinion on Wingstop (WING), though they recently removed their recommendation on Domino’s (DPZ) after earnings disappointed.