The restaurant industry has rebounded for the last 2 years, driven by post-COVID reopening, consolidation, and expansion efforts. That has stocks like Chipotle Mexican Grill (NYSE: CMG) and Darden Restaurants (NYSE: DRI) trending higher and on the verge of setting new highs.
While results underpin the action, the analysts drive the market and have both stocks on Marketbeat’s Most Upgraded Stocks list. With this trend in place and solid support from the institutions, new highs are all but assured.
Chipotle: The Pure Growth Play
Chipotle Mexican Grill is a play on growth that centers on CEO Brian Niccol. The company has made a complete about-face since he took the helm and is growing at an accelerating pace in 2023. Part of the strategy focuses on quality, the core of Chipotle’s offerings from the start. However, that has been amplified by a tech-centric attitude leaning heavily into eCommerce and customer relationships, driving repeat business. Another strategy pillar is the Chipotlane drive-thrus and digital kitchens that can only be accessed with the Internet. The evidence of that success can be seen in the push toward opening new Chipotlanes and remodeling old locations to have one.
The analysts are upping their EPS and stock price targets with only a month until the following earnings reports. The 4 revisions issued in June include price target increases with a consensus above $2300. That’s $240 or 12% above the consensus target, trending higher than last month, last quarter, and last year. Assuming the following report is as good as expected, this market could quickly move into the high end of its expected range and higher.
The chart confirms this. The chart shows a solid Bullish Flag Pattern with a $300 to $600 flag pole, depending on where you measure from. That puts the price action firmly at the $2300 level with a chance of hitting the $2600 mark, given a solid EPS report. As for the institutions, thy own nearly 92% of the stock, and their activity is ramping higher. The balance of activity is closely matched, suggesting rotation from profit-takers to new money but bullish on balance in Q1 and Q2 2023.
Darden Restaurants: Price Decline Attracts New Money
Darden Restaurants did not catalyze a rally with its Q4 results and outlook for 2023. The news was tepid despite calling for growth and operational improvement, resulting in a mid-single-digit drop in share value. That move was met by buyers and analysts raising their price targets for the stock. The company received 6 revisions that Marketbeat’s tools picked up, including 5 upward and 1 down. The takeaway from the data is that the single downward revision is $17 above the consensus, and the average of the 6 is close to the same. That’s more than 10% above the broad consensus trending higher. It is also deep into the new all-time high territory and has the market on the verge of a breakout.
Shares of DRI stock were trending higher before 2020 and have continued that trend since. The company’s growth trajectory drives the uptrend, and operational quality includes a healthy dividend. The stock yields more than 3.25% and is accompanied by share repurchases. The recent purchase of Ruth’s Chris Steak House owner Ruth’s Hospitality Group is expected to drive top and bottom-line growth and margin improvement.
The chart is favorable to higher prices. The market recently hit a new all-time high and has decreased slightly since. The post-release action includes a drop in prices that produced a rebound. The weekly candle is red, but the daily action shows a trend-following bounce that should result in another rally.