Why Domino's and Chipotle Could be 2019's Big Winners

For very different reasons, the two chains carry plenty of promise into the New Year.

 

By Danny Klein, QSR Magazine

January 2019

 

Whenever you reflect on a year that just ended, it’s always worth asking whether those key trends will die or carry on. Arguably 2018 was best defined by four dynamics for restaurants: Delivery and technology in regards to off-premises (as one category), promotional activity and the increased ad spending that accompanied it, labor challenges, and one of the hottest M&A runs in any industry, at any time in recent memory.

 

BTIG analyst Peter Saleh wrote Friday morning that similar trends should unfold from a macro standpoint in 2019. But here are some major themes: The lessening of promotional activity amid labor issues. And the continued, but reduced, deal activity in the public restaurant space. While hard to rival last year’s run, restaurants remain red-hot targets for private-equity firms. The real estate play is extremely valuable and the price is right for some larger chains that have slid traffic due to overexpansion and competitive saturation. On the same token, it’s appealing to many public brands to head private and batten down the hatches, so to speak. Buffalo Wild Wings, in one example, was mired in what felt like a never-ending news cycle of often-ugly activist battles before its $2.9 billion deal to Arby’s (now Inspire Brands). Prior to sale, BWW reported a net earnings decrease of nearly 20 percent as same-store sales dropped 2.3 percent at corporate units and 3.2 percent at franchised ones. We haven’t heard much since, other than uplifting news of executive hires, ad campaigns, and an exciting restaurant prototype. Control the message.

 

Saleh wrote there are still opportunities for potential deals in 2019, with Jack in the Box and full-service burger chain Red Robin as “the most likely candidates in our universe.” Jack in the Box admitted recently it held potential talks with buyers. If dealt, Saleh estimated an acquisition price of $115 per share or 46 percent premium to its current price. However, assuming a 1 to 1.5 times multiple discount to Sonic’s recent deal (also to Inspire), given Jack in the Box’s sales issues, would generate a price tag of $100–$105 per share.

 

In Saleh’s predictions, two quick-service chain stood out as his top picks for 2019: Domino’s and Chipotle, although for very different reasons.

 

Let’s start with Domino’s ...

 

As for Chipotle ...

 

more, including links 

https://www.qsrmagazine.com/finance/why-dominos-and-chipotle-could-be-2019s-big-winners