Melius starts restaurants with Sells on McDonald’s and Starbucks

Melius Research rolled out coverage on 11 names in the restaurant group. The firm says restaurants are no longer competing just with each other, but with grocers and concipient stores for meal occasions. While the restaurant industry is structurally attractive, defending traffic share “is harder than ever,” the analyst tells investors in a research note. Melius favors companies with strong unit economics, disciplined growth and capital allocation, and long-term brand relevance. The firm put Sell ratings on McDonald’s (MCD) and Starbucks (SBUX), Buy ratings on Yum! Brands (YUM), Texas Roadhouse (TXRH), Restaurant Brands (QSR) and Dutch Bros (BROS), and Hold ratings on Chipotle (CMG), Darden (DRI), Domino’s Pizza (DPZ), Cava Group (CAVA) and Wingstop (WING). Yum is the analyst’s top pick, due to its global scale and capital-light, franchise-led growth. Melius believes McDonald’s U.S. value perception has eroded while competition for everyday occasions is intensifying. For Starbucks, the firm believes the company’s pricing has outpaced the consumer experience and that its U.S. turnaround will take time.