Wedbush: Dine Brands, Wingstop are winners, Starbucks outlook uncertain
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Wedbush Securities is selecting some significant opportunities in the restaurant sector ahead of a host of earnings reports due next week.
âWe favor our two names with the highest franchised mix, [Dine Brands Global] (NYSE:DIN) and [Wingstop] WING,â analyst Nick Setyan wrote in a note to clients on Friday.
He added that while margin pressure is impacting the entire industry, Applebeeâs and IHOP parent Dine Brands (DIN) should report resilience to these impacts. Setyan surmised that pricing power is better managed by the franchising model, providing protection for the bottom line.
Meanwhile, a âprecipitous decline in wing costsâ was cited as a key insulator of Wingstopâs (NASDAQ:WING) margins.
âWe believe WING is uniquely positioned to reinforce its attractive relative value positioning after a year of outsized pricing,â Setyan said ahead of the chainâs earnings, also on May 4. He added that the stockâs historical performance in both positive and negative macroeconomic conditions is a boost to long term confidence in the stock.
However, he was less enthusiastic on the prospects for Starbucks (NASDAQ:SBUX), which will report on May 3. 
Setyan advised that there remain many factors out of managementâs hands at present. This includes lockdowns across China, a key growth market for the Seattle-based coffeehouse chain, and unionization efforts that are gaining momentum.
âThe bright side is that U.S. top line momentum likely continues,â Setyan wrote. âOn the other hand, global headwinds continue, and the Russia/Ukraine crisis only reinforces questions regarding the long-term viability of SBUX' commitment to China.â
Further, he noted that margin headwinds from adverse inflation and supply chain dynamics as well as the expectation of guidance cuts hang over the stock heading into the quarter. In short, a lack of visibility leading into earnings on key issues should keep investors away ahead of the report.
Wingstop (WING) and Dine Brands (DIN) were both rated Outperform by Setyan alongside price targets of $135 and $105 respectively. It is worth noting that the $135 price target is reined in from $165 previously expected as the Wedbush analysis now anticipates more moderate growth for the chain post-COVID. 
Starbucks (SBUX), by contrast, was assigned a Neutral rating and the price target was cut to $81 from $91 as lower EPS growth, a lack of share repurchases, and uncertain footing in global markets temper expectations.
Elsewhere, Wedbush cut its price target on Texas Roadhouse (TXRH) to $101 from $113 due to "limited near-term margin visibility." The firm nonetheless retained its Outperform rating on shares. 
Read more on Starbucksâ (SBUX) CEO Howard Schultzâs efforts to instill confidence in his return to the CEO role.