Piper Sandler cuts Shake Shack and 2 other restaurant stocks to Neutral

Piper Sandler analysts adjusted its stance on several restaurant stocks Monday, downgrading Dutch Bros (BROS), Sweetgreen (SG), and Shake Shack (NYSE:SHAK ) to Neutral from Overweight.

Sweetgreen shares fell more than 6% after the market open, while SHAK and BROS lost around 2% each.

For Dutch Bros, the downward revision comes despite Piper Sandler's recognition of CEO Christine Barone's achievements and the potential sales tailwind from the company's Mastery of All Operations and Production (MOAP) initiative expected around 2025.

However, concerns about the company's position in a high-risk segment of the industry and its balance sheet compared to peers prompted a reassessment of the risk-reward balance.

Similarly, Sweetgreen's rating was revised due to a reevaluation of stock selection risks, despite the firm's positive outlook on the company's long-term growth and the potential of its Infinite Kitchen technology.

“We think the Risk-Reward has become more balanced at current levels, hence the rating change. From our perspective, we wouldn’t be surprised if absolute share price upside was a bit harder to come by over the balance of this year,” analysts wrote.

Lastly, Shake Shack's downgrade was driven by anticipated challenges in menu pricing and the general industry environment. While Piper Sandler remains optimistic about the company's long-term growth opportunities, the firm anticipates that realizing further share price gains may become increasingly difficult.

“Investor expectations have increased in lock-step and the industry backdrop has seemingly gotten worse over the time period; which introduces execution risk into the equation from a go forward perspective.”

Coming out of the Q2 earnings season, Piper Sandler's downgrades point to tempered expectations about the broader Fast Casual sub-sector, which has navigated this year notably well so far.

Source: Investing.com