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Pro Analysis

Jefferies turns bearish on casual dining stocks, downgrades Dunkin' Brands, Cheesecake Factory

Dunkin Donuts
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Jefferies on Wednesday downgraded Dunkin' Brands to underperform from hold, citing poor holiday sales, rich valuations and the potential for margins to compress due to higher labor costs. The analyst also downgraded Cheesecake Factory for similar reasons.

"Although the market is clearly discounting the hoped-for benefits of corporate/personal tax cuts and less government regulation helping the industry, we remain focused on difficult NT [near-term] fundamentals," equity analyst Andy Barish wrote in a note to clients.

The analyst thinks same store sales during the holiday season may have been worse than expected due to harsh weather in the Northeast, while increased competition, especially in casual restaurants, could "more than offset potential economic stimulus" in 2017.

Margins in the upcoming quarters also could be impacted by higher wages and rising food costs, he said.