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Good news is good; bad news is taken with a grain of salt.

Yesterday, Starbucks was upgraded to buy from neutral on a “sales and profit momentum” call that will not end.  At 10x NTM EV/EBITDA, SBUX is looking expensive but fundamentals are strong.  I agree with the “call” behind the upgrade, but think the analyst is just a little late to the party.

Sonic was also upgraded to overweight from underweight; Cheesecake Factory downgraded to underweight from neutral and Brinker downgraded to underweight from neutral. 

Yesterday’s score care looks this:

  • SBUX up 3.6% on a 125% increase in its 30-day average volume
  • SONC up 5.6% on a 274% increase in its 30-day average volume
  • EAT down only 0.5% on a decline of 11% in its 30-day average volume
  • CAKE down only 0.1% on a 27% increase in its 30-day average volume

Today, JACK was upgraded to buy from neutral and the stock is currently trading up 5.6% on strong volume.

I can’t comment on the legitimacy of the analysts who are making these “calls”.  What seems obvious is that there are no willing sellers on “bad” news, but the buyers show up on good news.  The current economic environment is having an outsized impact on QSR over FSR and that is now clear to everyone.

What is uncertain is when that tide will change.  The most obvious signal will be when the Casual Dining industry believes that the economic climate is strong enough for the major industry players to start growing units again.

TALES OF THE TAPE - 3.16