We will be updating our restaurants themes next Wednesday at 2 PM ET.
On Wednesday, we will be updating our LONG/SHORT Best Idea list and focusing our idea around three themes.
Inflation pressures persist
Inflationary pressures are well known, but the pervasive impact on the restaurant industry can't be ignored. Labor is a critical issue for the industry and it requires extraordinary moves by companies to attract a quality labor supply. As Hedgeye's Macro Team said last week, "the fastest growth in money printing globally has predictably produced, not just the fastest pace of asset price inflation on record, but also the highest rates of global price inflation in decades.
Macro setup favors secular growers
The current setup favors vigorous secular growers in the restaurant space, and OLO, DASH, and TOST now account for over $100 million in equity value. The Delta variant caused sales trends in August to cool and it has continued to impact sales trends into September. However, with case counts rolling over, we could see a sequential improvement as we roll through 4Q21. Unfortunately, that is where the good news ends, with tough comparisons beginning in March 2022. As a result, we are maintaining our cautious stance on casual dining into year-end.
Valuations stretched, fundamentals slowing
Fast Casual remains the one subsector where valuations look stretched, while Casual Dining is the least expensive subsector. They are two of the three best performing subsectors, with the other being Pizza - the best performing subsector YTD. Over the past three months Distribution and Casual Dining have seen the sharpest negative revisions in Revenues and Earnings, while Family, Delivery, and Pizza have seen the highest revisions.
More to come.
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