us restaurants marketing deck - credit suisse

US RestaurantsMarketing Deck

June 23, 2020

Lauren Silberman, CFA, CPAResearch Analyst+1 212 325 [email protected]

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may

have a conflict of interest that could affect the object ivity of this report. Investors should consider this report as only a single factor in making their investment decision.

mailto:[email protected]

2

Coverage & Ratings7 Outperform, 1 Underperform, 3 Neutral

Source: FactSet, Company data, Credit Suisse estimates

Ticker Company CS RatingMarket Cap

($MM)Current Price

CS Target

Price

Upside/

Downside

NTM

EV/EBITDANTM P/E CS Thesis

PZZA Papa John's Outperform $1,852 $83 $90 9.9% 21.7x 50.5x

We have increased confidence in the trajectory of a turnaround following, and expect new management fo leverage a similar

playbook to Arby's, offering increased v isibility into a revamped strategy. We anticipate early focus will be on franchisee

profitability.

CMG Chipotle Outperform $21,348 $1,011 $940 -7.0% 41.8x 74.5xHigh convinction in 10%+ top-line growth generating margin leverage with attractive flow-through. Earnings growth

supports premium multiple.

SBUX Starbucks Outperform $96,689 $75 $82 10.7% 21.6x 34.2x

High-single-digit rev growth, modest margin expansion & repurchases support EPS growth of 10%+ going forward.

Americas & CAP sales leverage, improved performance in China & strategic optionality represent upside. A more focused

growth strategy & enhanced capital structure support premium valuation to history.

DPZ Domino's Pizza Outperform $13,438 $378 $415 10.6% 21.9x 29.4xHigh convinction in ~10% top-line growth supporting global market share gains. Third-party delivery concerns appear

overblown. SSS outperformance should improve sentiment & upside to base case.

DNKN Dunkin' Brands Outperform $5,834 $64 $67 6.8% 17.9x 22.8x

DNKN's pure-play 100% franchised business model is v iewed as one of the most attractive in restaurants, warranting a

premium to restaurant peers, and we believe DNKN could benefit from a sustainable increase in digital sales post-COVID,

supported by recent enhancements to its digital platform.

MCD McDonald's Outperform $150,990 $187 $210 15.0% 19.5x 27.6x

We're bullish on MCD's outlook, with traction against sales initiatives supporting upside to SSS and EPS near & long-term.

Healthy global SSS, defensive characteristics, ongoing transition to ~95% franchise-mix & increased digital focus should

provide support for the current valuation premium.

QSRRestaurant

Brands Intl. Outperform $27,863 $54 $59 12.4% 17.2x 22.9x

Confident in long-term growth with international network of master franchisees. Menu innovation at BK US and

innovation/digital enhancements at TH Canada should support SSS acceleration. Valuation is at discount to peer group &

history.

YUM Yum! Brands Neutral $27,835 $88 $95 9.7% 19.3x 26.5xSolid asset-light business with a strong unit growth outlook and diversified portfolio across brands and geographies. But at

current valuation, we would wait for a better entry point before becoming constructive on shares.

WEN Wendy's Neutral $4,376 $22 $24 12.2% 20.6x 36.4x

Improved fundamentals and a more consistent FCF profile appear to be reflected in shares. We're cautious on a meaningful

acceleration in unit growth given recent challenges & lack of international infrastructure, and risks to long-term targets could

weigh on valuation.

SHAK Shake Shack Neutral $2,191 $55 $48 -11.9% 38.3x

While we have confidence in the LT unit growth potential, we believe SHAK faces outsized near-term risk from the impact of

COVID-19 with its exposure to high-traffic, tourist areas. Given uncertainty regarding the timing of a recovery, a return to

normalized sales levels & resumption of new unit growth, we rate shares Neutral.

JACK Jack in the Box Underperform $1,621 $71 $54 -21.3% 14.3x 16.6x

Flat SSS, elevated closures, geographic concentration, margin pressure & penetrated burger segment represent headwinds to

unit growth (flat over last decade). A lackluster sales plan is unlikely to drive a sustainable SSS inflection. Risk to LT targets

exist and could weigh on valuation.

US Restaurants Coverage

3

Value Creation in RestaurantsEvolution of Digital and Delivery

Source:: Credit Suisse estimates

Leverage the box (increase in-store sales) – Demand for convenience

– Unlock incremental sales through digital channels (mobile order & pay, delivery, loyalty incentives); increase throughput

Expand global footprint – Increase real estate site potential

– New formats increase addressable market– Increase number of access points

Improve margins – Generate leverage and cost saves

– Increased capacity/throughput supports margin leverage (not constrained to

three meals)– Cost savings (i.e. labor)– But digital also comes at a cost (i.e. infrastructure, delivery fees)

Volume Increases ~10-15%Volume

Increases

~20-30%

Delivery

4

Digital Supports Incremental Sales VolumesAdding Convenience Not Seen Since the Drive-Thru

Source: Credit Suisse estimates

AUV*

Traditional

QSR

Drive-Thru

~50-70%

Sales Mix

Mobile Order

Drive-Thru

~20%

Sales Mix

Drive-thru orders tend to generate higher avg tickets

relative to in-store orders (multiple people in car)

Digital channels support an additional layer of sales and orders generally

1.5-2x higher than an in-store order (group orders; suggestive sell; more time to browse)

*Average unit volume

5

Technology Comes At A CostCorporate Level

Source: Company data, Credit Suisse estimates

Technology is a perpetual cost restaurants must incur to maintain their digital ecosystems

All companies across all restaurant segments are increasing investments in digital and the majority

are partnering with third-party aggregators for delivery

Select companies are also making big investments in outside firms as they seek to gain a

competitive advantage against peers (accelerate digital innovation, access to talent, etc.)

February 2018: $200MM in Grubhub

July 2018: Acquires license for CardFree

December 2018: Acquires QuikOrder for $77MM

February 2019: $25MM digital investment, including $15MM for Accenture partnership

March 2019: $100MM investment in Venture Fund that invests in food & retail startups

March 2019: $300MM to acquire Dynamic Yield startup & $5MM investment in PlexureSeptember 2019: Acquires Apprente voice tech startup; launches McD Tech Labs

6

Technology Comes At A Cost – Restaurants & CustomersCost of Delivery


Incremental delivery costs weigh on margins, though

higher average tickets and

incrementality support better delivery order profitability

Customers pay higher prices for delivery through delivery fees, service fees and inflated

menu prices

In-Store

Avg Check

Delivery

1.5x Avg

Check

Delivery

2x Avg

Check

Delivery

1.5x Avg

Check

Delivery

2x Avg

Check

Average Ticket $7.00 $10.50 $14.00 $10.50 $14.00

Food & Paper 28.5% 29.0% 29.0% 29.0% 29.0%

Labor 28.0% 18.7% 14.0% 14.0% 10.5%

Royalty 4.0% 4.0% 4.0% 4.0% 4.0%

Advertising 4.0% 4.0% 4.0% 4.0% 4.0%

Other Operating 12.0% 8.0% 6.0% 6.0% 4.5%

Rent 12.0% 12.0% 12.0% 12.0% 12.0%

Commission 0.0% 20.0% 20.0% 20.0% 20.0%

EBITDA per order 11.5% 4.3% 11.0% 11.0% 16.0%

EBITDA $ per order $0.81 $0.45 $1.54 $1.16 $2.24

Cost of Delivery - Restaurant Level

Assumes IncrementalityNo Incrementality

In-Store

Avg Check

Delivery

1.5x Avg

Check

Delivery

2x Avg

Check

Delivery

1.5x Avg

Check

Delivery

2x Avg

Check

Average Ticket $7.00 $10.50 $14.00 $10.50 $14.00

% Menu Price Adjustment 20% 20%

Adjusted Average Ticket $12.60 $16.80

Delivery Fee $1.99 $1.99 $1.99 $1.99

Service Fee 15.0% 15.0% 15.0% 15.0%

Small Order Fee (if appicable) $2.00 $2.00 $2.00 $2.00

Order Cost to Customer $7.00 $14.07 $18.09 $16.48 $21.31

Cost of Delivery - Customer Level

No Menu Price Adj. Menu Price Adj.

7

Restaurants are trading at ~15.5x FY2 EV/EBITDA, more than 4x above the 10-yr average of ~11x and at a P/E of ~25.5x earnings, above the 10-yr average of ~21x

Restaurants trade at premium valuations driven by: higher unit growth opportunities, international exposure, lower inventory risk, lower impact from digital/online shift

– Within restaurants, companies with heavily franchised business models and strong unit growth

prospects trade at higher valuations

Restaurant Valuation

Source: FactSet, Credit Suisse estimates

FY2 P/EFY2 EV/EBITDA

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

Mar-

10

Mar-

11

Mar-

12

Mar-

13

Mar-

14

Mar-

15

Mar-

16

Mar-

17

Mar-

18

Mar-

19

Mar-

20

FY2 E

V/E

BIT

DA

FY2 EV/EBITDA 10-yr Avg +1 Std Dev -1 Std Dev

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

Mar-

10

Mar-

11

Mar-

12

Mar-

13

Mar-

14

Mar-

15

Mar-

16

Mar-

17

Mar-

18

Mar-

19

Mar-

20

FY2 P

/E

FY2 P/E 10-yr Avg +1 Std Dev -1 Std Dev

8

Credit Suisse Relative Rankings

Source: Credit Suisse estimates

Digital DeliveryProduct

InnovationValue Domestic International

Sales

Leverage

Cost

Savings

PZZA O

CMG O

SBUX O

DPZ O

DNKN O

MCD O

QSR O

YUM N

WEN N

SHAK N

JACK U

SSSGlobal Whitespace

OpportunityMargin Prospects

Strategic

Optionality

Credit

Suisse

Rating

9

Restaurants Coverage Summary

Source: FactSet, Company data, Credit Suisse estimates

Current Mkt Ent. EV/EBITDA P/E Net Short

CS CS Price Cap Value 3-yr 3-yr Div. Debt/ Int. as %

Ticker Company Rating PT 6/19/20 ($BN) ($BN) Avg Avg Yield EBITDA of Float

Quick Service Restaurants

DNKN Dunkin' Brands O $67 $64 $5.3 $7.8 17.9x 16.8x 22.8x 23.1x 0.0% 5.3x 4%

DPZ Domino's Pizza O $415 $378 $14.8 $19.0 22.2x 19.7x 29.8x 28.2x 0.8% 4.4x 5%

JACK Jack in the Box U $54 $71 $1.6 $2.9 14.4x 12.0x 16.9x 18.4x 0.0% 4.9x 15%

LOCO El Pollo Loco - - $15 $0.5 $0.6 16.6x 10.0x 25.4x 17.2x 0.0% 1.3x 21%

MCD McDonald's O $210 $187 $138.7 $173.9 19.6x 16.1x 27.7x 23.0x 2.7% 3.5x 1%

PZZA Papa John's International O $90 $83 $2.7 $3.3 21.9x 15.6x 51.1x 30.9x 1.1% 3.9x 14%

QSR Restaurant Brands International O $59 $54 $25.4 $36.5 17.4x 17.0x 23.3x 22.7x 3.8% 5.1x 3%

SBUX Starbucks Corporation O $82 $75 $88.1 $100.7 21.6x 15.4x 34.2x 25.1x 2.2% 2.3x 2%

WEN The Wendy's N $24 $22 $4.9 $7.4 20.6x 15.6x 36.5x 28.4x 0.9% 5.6x 4%

YUM Yum! Brands N $95 $88 $26.6 $37.0 19.2x 18.2x 26.3x 24.7x 2.1% 5.3x 2%

Average 19.2x 15.6x 29.4x 24.2x 4.2x

Fast Casual Restaurants

CMG Chipotle Mexican Grill O $940 $1,011 $28.2 $29.3 44.1x 22.3x 78.8x 43.8x 0.0% -1.1x 6%

NDLS Noodles & Company - - $6 $0.3 $0.3 26.6x 11.9x -42.9x 88.5x 0.0% 1.8x 17%

PBPB Potbelly Corporation - - $2 $0.1 $0.04 395.9x 139.0x -2.9x 26.0x 0.0% -19.4x 7%

SHAK Shake Shack N $48 $55 $2.1 $1.9 37.7x 25.6x 44.2x 0.0% -2.5x 24%

WING Wingstop - - $132 $3.9 $4.2 56.1x 38.1x 119.0x 74.8x 0.3% 3.9x 10%

Average 112.1x 47.4x 38.0x 55.5x -3.5x

Casual Dining Restaurants

BJRI BJ's Restaurants - - $21 $0.4 $0.5 17.9x 9.6x -17.5x 17.9x 2.4% 1.6x 7%

BLMN Bloomin' Brands - - $11 $1.0 $2.0 15.3x 8.4x -23.4x 12.7x 7.3% 5.1x 12%

CAKE Cheesecake Factory - - $23 $1.0 $1.2 27.3x 10.7x -67.0x 14.0x 0.0% 2.5x 31%

CBRL Cracker Barrel Old Country Store - - $112 $2.7 $2.8 13.9x 10.1x 25.0x 16.7x 0.0% 0.9x 9%

CHUY Chuy's Holdings - - $15 $0.3 $0.2 23.1x 11.1x 162.1x 13.5x 0.0% -0.5x 10%

DIN Dine Brands Global - - $43 $0.7 $2.0 12.8x 10.8x 14.8x 11.3x 0.0% 7.0x 11%

DRI Darden Restaurants - - $70 $9.1 $9.3 18.6x 11.9x 27.1x 18.5x 0.0% 0.8x 5%

EAT Brinker International - - $24 $0.9 $2.3 12.0x 8.1x 16.0x 10.7x 0.0% 5.1x 17%

PLAY Dave & Buster's Entertainment - - $16 $0.8 $1.1 38.1x 10.0x -7.2x 14.9x 0.0% 9.9x 14%

RRGB Red Robin Gourmet Burgers - - $11 $0.1 $0.6 46.0x 8.0x -1.5x 22.0x 0.0% 25.4x 31%

RUTH Ruth's Hospitality Group - - $8 $0.3 $0.3 24.6x 10.9x -76.3x 16.2x 0.0% 1.5x 8%

TXRH Texas Roadhouse - - $51 $3.5 $3.5 20.4x 12.9x 54.7x 25.5x 0.0% -0.2x 10%

Average 22.5x 10.2x 8.9x 16.2x 4.9x

NTM NTM

10

Company Summaries

11


Chipotle Mexican Grill (CMG)Outperform, $940 TPExecutive Summary Key Charts

• Credit Suisse View: CMG has returned to a narrative of

growth rather than recovery, with on-trend initiatives that well position the company to appeal to its target base and outperform peers. Contributions from traffic and average check growth should support mid-single-digit SSS longer-term and generate margin leverage to support an EPS CAGR of at least 25-30% through 2022.

• Confidence in Top-Line Performance: CMG’s comprehensive sales plan and omni-channel strategy should generate mid-single-digit SSS. Our confidence in ongoing momentum includes contributions from: 1) digital & delivery initiatives, with CMG well positioned with a younger consumer base, transportable food, and best-in-class

operations; 2) new menu innovation; 3) improved social media and marketing strategy; and 4) customer data analytics. Improving new-unit productivity and the potential for alternative formats support mid-single-digit unit growth, with modest step-ups likely.

• Power of the Economic Model: CMG is the only publicly

traded restaurant company in quick serve/fast casual with a 100% company-owned model. A return to $2.5MM AUVs ($2.2MM currently) should generate restaurant-level margins of ~24% by 2022 (20.5% in 2019) and new-unit returns of 70-80%.

Units & Unit Growth

Revenue & Revenue Growth

Current Price $1,010.83NTM EV/EBITDA 44.1xNTM P/E 78.8x52-wk Range $465.21-$1058.89

6/19/2020

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

$5,500

$6,000

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

YO

Y G

row

th %

Rev

enue

($

MM

)

Revenue YOY Growth %

2%

4%

6%

8%

10%

12%

14%

16%

500

1,000

1,500

2,000

2,500

3,000

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

YO

Y G

row

th %

Uni

ts

Units YOY Growth %

12

Source: Consensus Metrix, Company data, Credit Suisse estimates

Chipotle Mexican Grill (CMG)Outperform, $940 TPValuation & Risks Valuation History• Our $940 TP is based on:

— EV/EBITDA of 22.5x our NTM EBITDA in 12 months

— P/E of 40x our NTM EPS in 12 months

• Our EV/EBITDA multiple reflects a discount to CMG’s recent trading multiple (assumes decelerating SSS)

• Key risks include: headline risk related to food safety

incidents, competition, consumer spending deceleration, increased food and supply costs, health epidemic

3-yr Historical EV/EBITDA

3-yr Historical P/E

Credit Suisse Estimates vs Consensus

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x

45.0x

50.0x

Jun-1

7

Aug-1

7

Oct-

17

Dec-

17

Feb-1

8

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

Dec-

18

Feb-1

9

Apr-

19

Jun-1

9

Aug-1

9

Oct-

19

Dec-

19

Feb-2

0

Apr-

20

Jun-2

0

EV/E

BIT

DA

NTM EV/EBITDA 3-yr Avg +1 Std Dev -1 Std Dev

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x

45.0x

50.0x

55.0x

60.0x

Jun-1

7

Aug-1

7

Oct-

17

Dec-

17

Feb-1

8

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

Dec-

18

Feb-1

9

Apr-

19

Jun-1

9

Aug-1

9

Oct-

19

Dec-

19

Feb-2

0

Apr-

20

Jun-2

0

P/E

NTM P/E 3-yr Avg +1 Std Dev -1 Std Dev

Current Price $1,010.83NTM EV/EBITDA 44.1xNTM P/E 78.8x52-wk Range $465.21-$1058.89

6/19/2020

2019 1Q20 2Q20E 3Q20E 4Q20E 2020E 2021E 2022E

SSS 11.1% 3.3% -16.3% -0.1% 4.0% -1.8% 14.9% 5.0%

Consensus 11.1% 3.3% -14.3% -3.4% 1.7% -3.2% 11.4% 5.3%

Units 2,622 2,638 2,647 2,647 2,722 2,722 2,892 3,072

YOY % 5.3% 5.4% 4.9% 4.0% 3.8% 3.8% 6.2% 6.2%

Consensus ####### 2,638 2,636 2,663 2,716 2,713 2,885 3,080

YOY % 5.3% 5.4% 4.5% 4.6% 3.6% 3.5% 6.3% 6.8%

Revenue ($MM) $5,586 $1,411 $1,277 $1,468 $1,557 $5,713 $6,822 $7,543

YOY % 14.8% 7.8% -10.9% 4.6% 8.1% 2.3% 19.4% 10.6%

Consensus ($MM) ####### $1,411 $1,285 $1,414 $1,519 $5,629 $6,547 $7,328

YOY % 14.8% 7.8% -10.4% 0.7% 5.5% 0.8% 16.3% 11.9%

Operating Margin 8.9% 5.9% -3.1% 9.3% 10.3% 6.0% 12.3% 13.4%

Consensus 8.9% 6.0% -0.6% 6.1% 8.6% 5.2% 10.7% 12.4%

EPS $14.05 $3.08 ($0.94) $3.55 $4.19 $9.89 $21.98 $27.09

YOY % 58.2% -9.4% -123.5% -6.9% 46.8% -29.7% 122.4% 23.2%

Consensus 1406.0% $3.08 ($0.06) $2.38 $3.54 $8.93 $18.75 $24.48

YOY % 58.3% -9.4% -101.5% -37.7% 23.8% -36.5% 110.0% 30.6%

13


Dunkin’ Brands Group (DNKN)Outperform, $67 TPExecutive Summary Key Charts

• Credit Suisse View: DNKN’s pure-play 100% franchised

business model is viewed as one of the most attractive in restaurants, warranting a premium to restaurant peers, and we see limited risk of mass closures given the health of its

franchisee system, attractive category dynamics, broad eligibility for franchisees to take advantage of benefits from government stimulus and high US exposure (nearly 90% of operating profit).

• Repositioning for Long-Term: DNKN has improved its positioning in recent years, with efforts around espresso,

value, operations and digital. Should there be an economic downturn, we view DNKN’s value perceptions and business model as favorable.

• Digital Approaching Inflection: Several months ago, DNKN implemented multi-tender payment and opened On-

the-Go ordering to all customers, supporting increased enrollment in DD Perks and mobile order utilization. We believe the expansion of the digital ecosystem should support digital unlocks, including incremental downloads and members. The company should also benefit from a sustainably higher digital mix post-outbreak as consumers

shift towards digital channels.

Units by Segment

Operating Income by Segment

Current Price $64.09NTM EV/EBITDA 17.9xNTM P/E 22.8x52-wk Range $39.68-$83.80

6/19/2020

-

5,000

10,000

15,000

20,000

25,000

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Uni

ts

Dunkin' US Dunkin' International

Baskin-Robbins US Baskin-Robbins International

$0

$100

$200

$300

$400

$500

$600

$700

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Ope

ratin

g In

com

e ($

MM

)

Dunkin' US Dunkin' International

Baskin-Robbins US Baskin-Robbins International

14


Dunkin’ Brands Group (DNKN)Outperform, $67 TPValuation & Risks Valuation History• Our $67 TP is based on:

— EV/EBITDA of 16x our NTM EBITDA in 12 months

— P/E of ~21.5x our NTM EPS in 12 months

• Our EV/EBITDA multiple is a slight discount to DNKN’s 3-yr avg

• Key risks include: competition, consumer spending, macro, lowered unit growth, interest rates, health epidemic


3-yr Historical P/E



6/19/2020

2019 1Q20 2Q20E 3Q20E 4Q20E 2020E 2021E 2022E

Dunkin' US SSS 2.1% -2.0% -32.0% -8.7% -5.0% -10.7% 12.4% 2.1%

Consensus 2.1% -2.0% -21.0% -9.1% -3.5% -8.8% 9.4% 2.2%

Global Units 21,297 21,335 21,249 21,093 20,952 20,952 21,267 21,617

YOY % 1.8% 2.0% 1.0% -0.3% -1.6% -1.6% 1.5% 1.6%

Consensus 21,297 21,335 21,204 21,048 20,929 20,935 21,206 21,492

YOY % 1.8% 2.0% 0.8% -0.5% -1.7% -1.7% 1.3% 1.3%

System Sales Growth 4.7% -0.2% -31.6% -6.9% -4.0% -11.1% 11.2% 4.1%

Consensus 4.6% -0.2% -26.0% -12.1% -6.1% -11.4% 10.8% 4.1%

Revenue ($MM) $1,370 $323 $253 $340 $328 $1,244 $1,372 $1,427

YOY % 3.7% 1.3% -29.7% -4.5% -2.2% -9.2% 10.3% 4.0%

Consensus ($MM) $1,370 $323 $281 $325 $325 $1,254 $1,365 $1,410

YOY % 3.7% 1.3% -21.8% -8.7% -3.2% -8.5% 8.8% 3.3%

Operating Margin 34.3% 32.8% 31.4% 36.1% 34.3% 33.8% 33.7% 33.9%

Consensus 34.3% 32.8% 30.6% 34.4% 33.7% 33.0% 34.0% 34.2%

EPS $3.17 $0.67 $0.42 $0.80 $0.71 $2.61 $3.02 $3.27

YOY % 9.3% -0.5% -50.9% -10.9% -2.2% -17.6% 15.6% 8.5%

Consensus $3.17 $0.67 $0.49 $0.72 $0.70 $2.58 $3.06 $3.29

YOY % 9.3% -104.2% -99.3% -99.3% -4.1% -18.6% 18.6% 7.5%

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

Jun-1

7

Aug-1

7

Oct-

17

Dec-

17

Feb-1

8

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

Dec-

18

Feb-1

9

Apr-

19

Jun-1

9

Aug-1

9

Oct-

19

Dec-

19

Feb-2

0

Apr-

20

EV/E

BIT

DA


10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

24.0x

26.0x

28.0x

Jun-17 Jun-18 Jun-19

P/E


15


Domino’s Pizza (DPZ)Outperform, $415 TPExecutive Summary Key Charts

• Credit Suisse View: DPZ is one of the best growth stories in restaurants, with ~7.5% revenue growth, margin expansion and benefits from repurchases driving a double-digit EPS CAGR over the next four years.

• SSS Outperformance: DPZ should stabilize SSS and maintain share gains as one of the few companies with

contribution from positive traffic, the only company with a frequency-based loyalty program, consistent value messaging, favorable franchisee relations (avg franchisee

~$1MM EBITDA) and an industry-leading digital ecosystem supporting best-in-class execution.

• Third-Party Delivery as NT Pressure, But Not LT Issue:

An increasing number of cross-branded campaigns with

national QSR chains, competition for delivery drivers and

aggressive promos represent incremental competitive pressure NT. LT, pizza’s stable 10-yr ~$10BN delivery market

share should largely hold, with pizza a cuisine that travels well and offers great value. Positioning as a delivery company could be a net positive for DPZ as delivery demand increases, while increased focus on carryout can drive incremental sales and help offset competitive pressures.

Revenue Composition

Unit Composition


6/19/2020

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Rev

enue

C

ompo

sitio

n

US Stores International Franchise Supply Chain

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Uni

t C

ompo

sitio

n

US Company US Franchise International Franchise

16


Domino’s Pizza (DPZ)Outperform, $415 TPValuation & Risks Valuation History• Our $415 TP is based on:

— EV/EBITDA of ~23x our NTM EBITDA in 12 months

— P/E of ~32x our NTM EPS in 12 months

• Our EV/EBITDA and P/E multiples represent a premium to DPZ’s historical averages

• Key risks include: increased competition, primarily from third-party delivery, reduced consumer spending if there is a deterioration in economic conditions, health epidemic


3-yr Historical P/E


12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

24.0x

26.0x

Jun-1

7

Aug-1

7

Oct-

17

Dec-

17

Feb-1

8

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

Dec-

18

Feb-1

9

Apr-

19

Jun-1

9

Aug-1

9

Oct-

19

Dec-

19

Feb-2

0

Apr-

20

Jun-2

0

EV/E

BIT

DA


15.0x

20.0x

25.0x

30.0x

35.0x

40.0x

Jun-1

7

Aug-1

7

Oct-

17

Dec-

17

Feb-1

8

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

Dec-

18

Feb-1

9

Apr-

19

Jun-1

9

Aug-1

9

Oct-

19

Dec-

19

Feb-2

0

Apr-

20

Jun-2

0

P/E



6/19/2020

2019 1Q20 2Q20E 3Q20E 4Q20E 2020E 2021E 2022E

Domestic SSS 3.2% 1.6% 16.4% 9.1% 6.0% 8.3% 1.8% 3.5%

Consensus 3.2% 1.6% 12.8% 6.9% 4.7% 6.4% 2.5% 3.2%

Global Units 17,020 17,089 17,161 17,283 17,710 17,710 18,893 20,151

YOY % 6.9% 6.1% 5.2% 4.6% 4.1% 4.1% 6.7% 6.7%

Consensus 17,020 17,089 17,128 17,239 17,611 17,602 18,753 19,976

YOY % 6.9% 6.1% 5.0% 4.3% 3.5% 3.4% 6.5% 6.5%

Revenue ($MM) $3,619 $873 $937 $928 $1,312 $4,050 $4,230 $4,556

YOY % 5.4% 4.4% 15.5% 13.1% 14.0% 11.9% 4.5% 7.7%

Consensus ($MM) $3,619 $873 $915 $900 $1,290 $3,977 $4,182 $4,483

YOY % 5.4% 4.4% 12.7% 9.6% 12.1% 9.9% 5.2% 7.2%


Consensus 17.4% 17.9% 16.0% 17.4% 18.2% 17.4% 18.0% 18.3%

EPS $9.55 $3.07 $2.43 $2.55 $3.74 $11.79 $12.58 $14.29

YOY % 13.5% 39.8% 11.2% 24.2% 19.4% 23.4% 6.7% 13.6%

Consensus $9.57 $3.07 $2.22 $2.42 $3.75 $11.46 $12.31 $13.86

YOY % 13.7% 39.5% 1.4% 18.0% 19.8% 19.7% 7.4% 12.6%

17


Jack in the Box (JACK)Underperform, $54 TPExecutive Summary Key Charts

• Credit Suisse View: Despite JACK’s enhanced business model (~95% franchised, G&A management, leverage target ~5x), we see risks to LT targets which require acceleration in

top-line trends. With limited visibility into the drivers

supporting a sustainable inflection in SSS and unit growth, and fewer levers to unlock value, JACK warrants a valuation

discount relative to peers and recent history.

• Top-Line Acceleration Elusive: JACK has demonstrated challenged SSS averaging 0.7% over the last three years, including traffic of -2.6%, amidst a competitive environment

and company-specific execution. We do not see a clear strategy to reaccelerate traffic trends, with recent value initiatives nothing new and a short-term digital strategy. Unit

growth has been flat for nearly a decade, and we are not convinced JACK can meaningfully accelerate given franchisee tension, investment requirements & margin pressures.

• Cautious on Achievability of Long-Term Targets: We are cautious on the achievability of FY22 EBITDA (~$300MM) and FCF (~$175MM) targets, which imply SSS and unit growth acceleration to ~3.5-4% from ~1% over the last three years. Visibility into execution against G&A and capex

targets is high. JACK’s recently initiated CEO succession plan also adds uncertainty to the outlook.

Unit Composition


6/19/2020

-

500

1,000

1,500

2,000

2,500

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

Uni

ts

Company-operated Franchise

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

Rev

enue

($

MM

)

Sales Franchise royalty revenue & fees Franchise rental income

Revenue by Source

18


Jack in the Box (JACK)Underperform, $54 TPValuation & Risks Valuation History• Our $54 TP is based on:



• Our EV/EBITDA multiple reflects a discount to JACK’s 3-yr avg and a discount to its current multiple

• Key risks include: M&A; SSS acceleration; unit growth acceleration


3-yr Historical P/E



6/19/2020

2019 1Q20 2Q20 3Q20E 4Q20E 2020E 2021E 2022E

SSS 1.4% 1.8% -4.2% 2.5% 1.0% 0.5% 2.6% 1.5%

Consensus 1.3% 1.7% -4.2% 4.6% 3.3% 1.4% 3.0% 2.2%

Global Units 2,243 2,244 2,246 2,236 2,226 2,226 2,230 2,238

YOY % 3.2% 0.2% 0.0% -0.3% -0.7% -0.2% -0.3% 0.3%

Consensus ####### 2,244 2,246 2,244 2,241 2,241 2,254 2,282

YOY % 0.3% 0.1% 0.3% 0.1% -0.1% -0.1% 0.6% 1.2%

Revenue ($MM) $950 $308 $216 $220 $232 $976 $1,026 $1,023

YOY % -7.8% 5.8% 0.2% -1.2% 4.9% 2.7% 5.1% -0.2%

Consensus ($MM) ####### $308 $216 $237 $237 $998 $1,047 $1,069

YOY % 9.2% 5.8% 0.2% 6.4% 7.3% 5.0% 4.9% 2.1%


Consensus 22.0% 19.0% 15.2% 19.7% 19.1% 18.4% 19.7% 20.3%

EPS Excl. Gains $4.37 $1.17 $0.50 $0.86 $0.80 $3.35 $4.27 $4.87

YOY % 15.3% -13.3% -49.5% -19.9% -16.1% -23.4% 27.3% 14.1%

Consensus 437.0% $1.17 $0.50 $0.95 $0.91 $3.54 $4.50 $5.15

YOY % 15.3% -13.3% -49.5% -11.2% -4.2% -19.0% 27.1% 14.4%

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

Jun-1

7

Aug-1

7

Oct-

17

Dec-

17

Feb-1

8

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

Dec-

18

Feb-1

9

Apr-

19

Jun-1

9

Aug-1

9

Oct-

19

Dec-

19

Feb-2

0

Apr-

20

Jun-2

0

EV/E

BIT

DA


5.0x

7.0x

9.0x

11.0x

13.0x

15.0x

17.0x

19.0x

21.0x

23.0x

Jun-1

7

Aug-1

7

Oct-

17

Dec-

17

Feb-1

8

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

Dec-

18

Feb-1

9

Apr-

19

Jun-1

9

Aug-1

9

Oct-

19

Dec-

19

Feb-2

0

Apr-

20

Jun-2

0

P/E


19


McDonald’s (MCD)Outperform, $210 TPExecutive Summary Key Charts

• Credit Suisse View: Recent asset and technology investments support a more modernized MCD, and we believe the company is effectively expanding its competitive moat relative to peers. SSS represent the greatest source of upside to shares, with MCD’s slate of on-trend sales initiatives supporting outperformance. Healthy SSS, defensive characteristics & transition to ~95% franchised support the current premium valuation.

• US Sales Outperformance to Continue: Sales initiatives are starting to gain traction, and should continue to drive momentum with contributions from: 1) delivery (expanded partnerships); 2) digital (recent acq. of Dynamic Yield); 3)

Experience of the Future (EOTF) as a net positive; 4) an improved value strategy with a shift to more localized marketing; and 5) a return to breakfast share gains with local value & service time improvements.

• Digital Supports Future Gains: MCD’s recent tech

investments suggest a long-term strategy to develop an

integrated digital infrastructure. With the acquisition of Dynamic Yield, MCD has unlocked access to innovative tech & talent, customer data, & incremental revenue channels over time.

Unit Composition

System Sales by Segment


6/19/2020

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Sys

tem

Sal

es (

$M

M)

US International Lead Markets

High Growth Markets Foundational Markets & Corporate

International Operated Markets International Developmental Licensed Markets

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Uni

ts

US International Lead Markets

High Growth Markets Foundational Markets & Corporate

International Operated Markets International Developmental Licensed Markets

20


McDonald’s (MCD)Outperform, $210 TPValuation & Risks Valuation History• Our $210 TP is based on:

— EV/EBITDA of ~16.5x our NTM EBITDA in 12 months

— Implies a P/E of ~24.5x our NTM EPS in 12 months

• Our EV/EBITDA multiple is a premium to MCD’s historical

multiple of 15.5-16x

• Key risks include: increased competition, changes in consumer spending, FX volatility, health epidemic


3-yr Historical P/E


10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

Jun-1

7

Aug-1

7

Oct-

17

Dec-

17

Feb-1

8

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

Dec-

18

Feb-1

9

Apr-

19

Jun-1

9

Aug-1

9

Oct-

19

Dec-

19

Feb-2

0

Apr-

20

Jun-2

0

EV/E

BIT

DA



6/19/2020

2019 1Q20 2Q20E 3Q20E 4Q20E 2020E 2021E 2022E

US SSS 5.0% 0.1% -8.8% -2.0% 0.0% -2.6% 8.3% 3.0%

Consensus 5.0% 0.1% -8.4% -0.3% 1.6% -1.7% 6.2% 3.2%

Global Units 38,695 38,984 39,069 39,159 39,394 39,394 40,394 41,394

YOY % 2.2% 2.7% 2.5% 2.2% 1.8% 1.8% 2.5% 2.5%

Consensus 38,695 38,984 39,043 39,130 39,347 39,347 40,304 41,449

YOY % 2.2% 2.7% 2.5% 2.2% 1.7% 1.7% 2.4% 2.8%

Revenue ($MM) $21,077 $4,714 $3,596 $4,864 $5,146 $18,322 $21,313 $21,976

YOY % 0.2% -6.5% -34.2% -11.9% -5.3% -14.6% 18.4% 3.1%

Consensus ($MM) $21,077 $4,714 $3,718 $4,926 $5,243 $18,582 $21,368 $22,062

YOY % 0.2% -4.9% -30.4% -9.3% -2.0% -11.8% 15.0% 3.2%


Consensus 43.4% 35.9% 26.7% 40.0% 40.8% 36.6% 42.7% 44.2%

EPS $7.85 $1.47 $0.54 $1.70 $1.83 $5.55 $8.29 $9.07

YOY % -0.7% -14.4% -73.4% -19.3% -6.9% -29.2% 49.3% 9.4%

Consensus $7.84 $1.47 $0.68 $1.67 $1.85 $5.68 $8.05 $8.88

YOY % -0.8% -14.5% -66.8% -20.9% -6.1% -27.6% 41.7% 10.3%

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

24.0x

26.0x

28.0x

30.0x

32.0x

Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20

P/E


21


Papa John’s International (PZZA)Outperform, $90 TPExecutive Summary Key Charts

• Credit Suisse View: We have increased confidence in the trajectory of the turnaround following PZZA’s appointment of former Arby’s President, Rob Lynch, as CEO. We expect Lynch will leverage his experience with the Arby’s turnaround to develop a strategy for PZZA, including a focus on improving franchisee relationships and profitability, enhancing the marketing strategy, increasing the pipeline of new menu innovation and leveraging data analytics to drive decisions. We believe Papa John’s new leadership team can help reignite franchisee and investor sentiment as the brand moves farther away from the media scandals, and anticipate both franchisees and investors will give Lynch time to develop and implement a new strategy.

• We now expect new management to leverage a similar playbook to Arby’s, offering increased visibility into a potential turnaround strategy. We anticipate PZZA will work to change the brand narrative through a unified marketing message to highlight its quality positioning with new menu innovation,

increase its use of social media and develop a more engaging

personality, which should also help improve consumer perceptions. Early focus on franchisee profitability through top-line initiatives and cost savings opportunities, and increased utilization of data analytics should support improved franchisee relationships and franchisee buy-in.

Unit Composition

System Sales


6/19/2020

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Sys

tem

Sal

es (

$M

M)

Domestic International

-

1,000

2,000

3,000

4,000

5,000

6,000

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Uni

ts

Company North America Franchise International Franchise

22


Papa John’s International (PZZA)Outperform, $90 TPValuation & Risks Valuation History• Our $90 TP is based on:


— Implies a P/E of ~40x our NTM EPS in 12 months

• Our EV/EBITDA multiple is a slight discount to PZZA’s recent trading multiple of ~20x NTM EBITDA

• Key risks include: Consumer sentiment challenges, closures, competition, health epidemic


5-yr Historical P/E


8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

24.0x


EV/E

BIT

DA



6/19/2020

2019 1Q20 2Q20E 3Q20E 4Q20E 2020E 2021E 2022E

North America SSS -2.2% 5.3% 29.7% 15.3% 10.8% 15.9% 0.1% 2.5%

Consensus -2.2% 5.3% 28.1% 14.0% 10.2% 14.5% 3.1% 3.0%

Global Units 5,395 5,378 5,378 5,378 5,438 5,438 5,593 5,768

YOY % 1.7% 0.8% 0.6% 0.7% 0.8% 0.8% 2.9% 3.1%

Consensus 5,395 5,378 5,375 5,373 5,405 5,405 5,547 5,665

YOY % 1.7% 0.8% 0.6% 0.6% 0.2% 0.2% 2.6% 2.1%

Revenue ($MM) $1,619 $410 $487 $444 $468 $1,808 $1,838 $1,896

YOY % -2.5% 2.9% 21.7% 9.9% 12.0% 11.6% 1.7% 3.1%

Consensus ($MM) $1,619 $410 $468 $440 $449 $1,767 $1,840 $1,868

YOY % 2.9% 2.9% 17.1% 9.0% 7.6% 9.1% 4.1% 1.6%


Consensus 2.1% 3.8% 5.8% 4.4% 6.0% 5.0% 6.6% 7.1%

EPS $0.03 $0.15 $0.49 $0.19 $0.43 $1.26 $2.22 $2.42

YOY % -95.6% -19.2% 203.6% -376.9% -274.8% 3710.3% 75.6% 9.3%

Consensus $0.03 $0.15 $0.46 $0.29 $0.43 $1.33 $2.12 $2.35

YOY % -96.1% -21.1% 187.5% -514.3% -272.0% 4333.3% 59.4% 10.8%

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x

45.0x

50.0x

55.0x

60.0x


P/E


23


Restaurant Brands International (QSR)Outperform, $59 TPExecutive Summary Key Charts

• Credit Suisse View: RBI is well positioned to generate

global market share gains across its portfolio with contribution from SSS and unit growth. Increased confidence in accelerating SSS and sustainable global unit growth across the portfolio should support multiple expansion. We model EPS growth in the high-single-digits, with SSS outperformance, TH unit growth acceleration & TH margin expansion as opportunities for upside.

• RBI Well Positioned In Home Markets: Burger King and Popeyes remain healthy and well positioned for market share gains behind BK’s expansion of its plant-based platform and Popeyes’ chicken sandwich. We’re also encouraged by TH’s back to basics approach, including the rollout of a new coffee

brewer, expected introduction of non-dairy alternatives and innovation around core categories.

• Global Unit Growth Story Intact: We expect RBI to generate global unit growth of ~5.5% over the next four years, an acceleration from ~5% over the past four years.

International master franchise joint venture (MFJV)

agreements offer confidence in the achievability of targets, largely driven by global strength at BK and whitespace potential for Popeyes in a growing chicken category. Better-than-expected growth at TH could represent upside.

Units by Segment

EBITDA by Segment


6/19/2020

$906 $1,072 $1,136 $1,128 $1,122

$760

$816 $903 $930 $993

$107 $155 $189

$0

$500

$1,000

$1,500

$2,000

$2,500

2015 2016 2017 2018 2019

EB

ITD

A (

$M

M)

Tim Hortons Burger King Popeyes

4.4K 4.6K 4.7K 4.8K 4.9K

15.0K 15.7K 16.8K 17.8K 18.8K

2.9K3.1K

3.3K

22.0K23.1K

24.4K25.7K

27.1K

0.0K

5.0K

10.0K

15.0K

20.0K

25.0K

30.0K

2015 2016 2017 2018 2019

Glo

bal

Uni

t C

ount

Tim Hortons Burger King Popeyes

24


Restaurant Brands International (QSR)Outperform, $59 TPValuation & Risks Valuation History• Our $59 TP is based on:

— EV/EBITDA of ~16.5x our NTM EBITDA in 12 months


• Our EV/EBITDA multiple represents a slight discount to QSR’s 3-yr average of ~17x

• Key risks include: increased competition, changes in consumer spending, macro FX volatility, health epidemic


3-yr Historical P/E



6/19/2020

2019 1Q20 2Q20E 3Q20E 4Q20E 2020E 2021E 2022E

BK Global SSS 3.4% -3.7% -43.8% -8.2% -5.0% -12.2% 16.4% 2.2%

Consensus 3.4% -3.7% -18.2% -6.9% -1.3% -7.4% 10.2% 2.7%

TH Global SSS -1.5% -10.3% -42.7% -15.1% -5.1% -15.8% 16.6% 1.8%

Consensus -1.5% -10.3% -30.7% -11.2% -4.0% -13.9% 13.6% 2.4%

PLK Global SSS 13.6% 26.2% 14.0% 6.0% 2.0% 11.8% 5.5% 2.0%

Consensus 12.1% 26.2% 21.3% 14.2% -2.7% 14.6% 4.2% 3.0%

Global Units 27,086 27,109 27,159 27,219 27,429 27,429 28,729 30,169

YOY % 5.2% 5.0% 4.3% 3.5% 1.3% 1.3% 4.7% 5.0%

Consensus 27,086 27,109 27,172 27,295 27,649 27,649 28,881 30,250

YOY % 5.2% 5.0% 4.4% 3.7% 2.1% 2.1% 4.5% 4.7%

Revenue ($MM) $5,603 $1,225 $860 $1,321 $1,375 $4,781 $5,604 $5,876

YOY % 4.6% -3.2% -38.6% -9.4% -7.0% -14.7% 17.2% 4.8%

Consensus ($MM) $5,603 $1,225 $1,006 $1,300 $1,395 $4,931 $5,610 $5,865

YOY % 4.6% -3.2% -28.1% -10.8% -5.7% -12.0% 13.8% 4.5%


Consensus 37.1% 31.5% 28.0% 35.1% 37.4% 33.4% 37.0% 37.6%

EPS $2.72 $0.48 $0.20 $0.58 $0.65 $1.92 $2.71 $2.95

YOY % 3.5% -11.4% -71.2% -19.6% -13.1% -29.5% 41.6% 8.6%

Consensus $2.72 $0.48 $0.27 $0.57 $0.68 $2.00 $2.69 $2.94

YOY % 3.4% -12.7% -62.0% -20.8% -9.3% -26.5% 34.5% 9.3%

8.0x

13.0x

18.0x

23.0x

28.0x

33.0x

Jun-1

7

Aug-1

7

Oct-

17

Dec-

17

Feb-1

8

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

Dec-

18

Feb-1

9

Apr-

19

Jun-1

9

Aug-1

9

Oct-

19

Dec-

19

Feb-2

0

Apr-

20

Jun-2

0

P/E


9.0x

11.0x

13.0x

15.0x

17.0x

19.0x

21.0x

Jun-1

7

Aug-1

7

Oct-

17

Dec-

17

Feb-1

8

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

Dec-

18

Feb-1

9

Apr-

19

Jun-1

9

Aug-1

9

Oct-

19

Dec-

19

Feb-2

0

Apr-

20

Jun-2

0

EV/E

BIT

DA


25


Shake Shack (SHAK)Neutral, $48 TPExecutive Summary Key Charts

• Credit Suisse View: SHAK is facing an outsized near-term

risk from the impact of COVID-19 with its exposure to high-traffic, tourist areas, and a foundation built on community gathering. Given uncertainty regarding the timing of a recovery (particularly in urban markets), a return to normalized sales levels and resumption of new unit growth, we on the sidelines.

• Growing Pains: Sales were down ~70% on average exiting March, with significant declines expected to continue. Growth investments have been paused, including new unit growth. The company reduced salaries for all executives and HQ employees, reduced HQ headcount by ~20%, deferred Board of Directors cash compensation and implemented a

hiring freeze. SHAK also reduced staffing and operating expenses across all Shacks, noting COGS are largely variable, labor is partially variable, rent is mostly fixed and operating expenses are about half variable.

• Margin Outlook Difficult: We expect restaurant margins to

contract another 650bps in 2020, following 650bps of

decline since 2015. While we model ongoing margin contraction, we see longer-term opportunities for some margin recovery through revised delivery terms, SSS leverage, higher price, favorable new unit mix and contribution from digital.

Unit Composition

System Sales Composition

-

50

100

150

200

250

300

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Uni

ts

Domestic Company-Operated Domestic Licensed International Licensed

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2014 2015 2016 2017 2018 2019

Sys

tem

Sal

es (

$M

M)

Domestic Company Domestic & International License

Current Price $54.51FY2 EV/EBITDA 30.5xFY2 P/E 185.1x52-wk Range $32.51-$104.61

6/19/2020

26


Shake Shack (SHAK)Neutral, $48 TPValuation & Risks Valuation History• Our $48 TP is based on:


• Our EV/EBITDA multiple represents a discount to SHAK’s 3-yr average of ~25.5x

• Key risks include: unit growth/productivity, consumer spending, health epidemic


3-yr Historical P/E

Credit Suisse Estimates vs Consensus2019 1Q20 2Q20E 3Q20E 4Q20E 2020E 2021E 2022E

SSS 1.3% -12.8% -44.6% -21.5% -12.5% -20.5% 23.3% 2.2%

Consensus 1.3% -12.8% -42.9% -20.5% -8.8% -20.9% 23.1% 3.8%

Global Units 275 287 290 290 308 308 356 427

YOY % 32.2% 31.7% 22.4% 14.2% 12.0% 12.0% 15.6% 19.9%

Consensus 275 287 290 292 298 298 352 406

YOY % 32.2% 31.7% 22.4% 15.0% 8.4% 8.4% 18.1% 15.3%

Revenue ($MM) $595 $143 $92 $148 $159 $543 $726 $842

YOY % 29.4% 8.0% -39.6% -6.3% 5.3% -8.7% 33.7% 16.1%

Consensus ($MM) $595 $143 $101 $139 $159 $542 $703 $840

YOY % 29.4% 8.0% -33.8% -11.8% 5.0% -8.8% 29.7% 19.4%

Operating Margin 4.7% -0.5% -21.5% -0.3% -3.9% -5.0% 2.9% 2.9%

Consensus 4.7% -0.5% -17.7% -2.3% -0.7% -4.1% 2.3% 3.5%

EPS $0.72 $0.02 ($0.35) ($0.01) ($0.11) ($0.46) $0.38 $0.43

YOY % 0.8% -84.0% -230.5% -104.0% -292.3% -164.1% -183.5% 12.6%

Consensus $0.72 $0.02 ($0.33) ($0.05) ($0.02) ($0.38) $0.29 $0.56

YOY % 1.4% -84.6% -222.2% -119.2% -133.3% -152.8% -176.3% 93.1%

8.0x

13.0x

18.0x

23.0x

28.0x

33.0x

38.0x

Jun-1

7

Aug

-17

Oct-

17

Dec-1

7

Feb-1

8

Apr-

18

Jun-1

8

Aug

-18

Oct-

18

Dec-1

8

Feb-1

9

Apr-

19

Jun-1

9

Aug

-19

Oct-

19

Dec-1

9

Feb-2

0

Apr-

20

Jun-2

0

EV/E

BIT

DA

FY2 EV/EBITDA 3-yr Avg +1 Std Dev -1 Std Dev

8.0x

58.0x

108.0x

158.0x

208.0x

258.0x

Jun-1

7

Aug

-17

Oct-

17

Dec-1

7

Feb-1

8

Apr-

18

Jun-1

8

Aug

-18

Oct-

18

Dec-1

8

Feb-1

9

Apr-

19

Jun-1

9

Aug

-19

Oct-

19

Dec-1

9

Feb-2

0

Apr-

20

Jun-2

0

P/E

FY2 P/E 3-yr Avg +1 Std Dev -1 Std Dev

Current Price $54.51FY2 EV/EBITDA 30.5xFY2 P/E 185.1x52-wk Range $32.51-$104.61

6/19/2020

27


Starbucks (SBUX)Outperform, $82 TPExecutive Summary Key Charts

• Credit Suisse View: SBUX is one of the highest quality growth companies in restaurants, with ~8% rev growth

(guide: 7-9%), modest margin expansion and repurchases

supporting our ~14.5% EPS growth 4-yr CAGR (guide: 10%+). Consistent 3-4% Americas SSS should support current valuation, with Americas sales leverage, improved performance in China, global margin expansion and strategic optionality as drivers of upside.

• Americas SSS As Primary Focus: An evolving digital ecosystem, beverage innovation, improved food platform, enhanced operations and pricing power support our 3-4% SSS estimate long term. SBUX’s loyalty program drives nearly all of its comp growth, and conversion of its non-

rewards customers could be a powerful SSS unlock.

• EPS Growth Story Intact: Guidance for long-term growth of 10%+ appears achievable, with opportunity for a return to beat and raises with a lower bar and margins at multi-year

lows (guide 17-18%; 5-yr avg. 19%). Greater sales leverage

in Americas (~65% operating profit), better-than-expected traction in China from recent initiatives (CAP ~20% operating profit) and strategic optionality represent the greatest sources of upside.

Revenue by Segment

Units by Segment


6/19/2020

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Rev

enue

($

MM

)

Americas International Channel Development Corporate & Other

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Uni

ts

Americas International Corporate & Other

28


Starbucks (SBUX)Outperform, $82 TPValuation & Risks Valuation History• Our $82 TP is based on:

— P/E of ~26-27x our NTM EPS in 12 months

— Implies an EV/EBITDA of ~17x our NTM EBITDA in 12 months

• Our P/E multiple is at a discount to SBUX’s current trading

multiple of ~33x

• Key risks include: increased competition, changes in consumer spending, inflation, health epidemic


5-yr Historical P/E



6/19/2020

2019 1Q20 2Q20 3Q20E 4Q20E 2020E 2021E 2022E

Americas SSS 5.3% 6.0% -3.0% -44.5% -13.4% -9.8% 16.7% 3.9%

Consensus 5.3% 6.0% -3.0% -42.9% -15.0% -13.6% 19.4% 4.8%

Global Units 31,256 31,795 32,050 32,120 32,540 32,540 34,010 36,050

YOY % 6.6% 6.5% 6.2% 4.9% 4.1% 4.1% 4.5% 6.0%

Consensus 31,256 31,795 32,050 32,247 32,626 32,625 34,394 36,465

YOY % 6.6% 0 6.2% 5.3% 4.4% 4.4% 5.4% 6.0%

Revenue ($MM) $26,509 $7,097 $5,996 $3,970 $5,996 $23,059 $27,135 $28,334

YOY % 7.2% 7.0% -4.9% -41.8% -11.1% -13.0% 17.7% 4.4%

Consensus ($MM) $26,509 $7,097 $5,996 $4,092 $5,920 $23,105 $27,752 $29,679

YOY % 7.2% 7.0% -4.9% -40.0% -12.3% -12.8% 20.1% 6.9%

Operating Margin 17.2% 18.2% 9.2% -20.7% 9.1% 6.8% 16.5% 17.8%

Consensus 17.2% 18.2% 9.2% -19.1% 9.0% 6.9% 15.7% 17.2%

EPS $2.83 $0.79 $0.32 ($0.63) $0.27 $0.74 $2.65 $3.11

YOY % 16.8% 5.2% -47.7% -181.6% -61.7% -73.7% 256.6% 17.4%

Consensus $2.83 $0.79 $0.32 ($0.62) $0.26 $0.76 $2.57 $3.12

YOY % 16.9% 5.3% -46.7% -179.5% -62.9% -73.1% 238.2% 21.4%

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

24.0x


EV/E

BIT

DA


10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x


P/E


29


The Wendy’s Company (WEN)Neutral, $24 TPExecutive Summary Key Charts

• Credit Suisse View: Following WEN’s transformation over

the last several years, its business model reflects an improved and more consistent FCF profile. In 2020, the focus will be execution at breakfast, the company’s fourth attempt at the

daypart. Execution risk exists, with shares trading near peak and limited visibility into a meaningful inflection in top-line

trends, we rate shares Neutral.

• Solid Outlook, but Heavy Competition: WEN’s historical focus on traffic-driving initiatives and prudent approach to pricing has supported positive and consistent SSS growth averaging ~2% over the last five years. Unit growth acceleration remains a show-me story, particularly in

international markets.

• FCF Expectations at Low End of Guide: Execution against sales initiatives and unit growth will be the primary drivers of normalized FCF growth. Operating margins are now at peak levels, and it is difficult to identify opportunities to drive that

much higher following recent optimization efforts (beyond

breakfast).

Revenue Composition

Unit Composition


6/19/2020

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

2017 2018 2019

Rev

enue

($

MM

)

Wendy's US Wendy's International Global Real Estate & Development

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2011 2012 2013 2014 2015 2016 2017 2018 2019

Uni

ts

US Franchise US Company International

30


The Wendy’s Company (WEN)Neutral, $24 TPValuation & Risks Valuation History• Our $24 TP is based on:


• Our EV/EBITDA multiple is in-line with WEN’s 3-year average

• Key risks include: increased competition, breakfast execution, inflation, interest rates, health epidemic


3-yr Historical P/E


10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

Jun-1

7

Aug-1

7

Oct-

17

Dec-

17

Feb-1

8

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

Dec-

18

Feb-1

9

Apr-

19

Jun-1

9

Aug-1

9

Oct-

19

Dec-

19

Feb-2

0

Apr-

20

Jun-2

0

EV/E

BIT

DA



6/19/2020

2019 1Q20 2Q20E 3Q20E 4Q20E 2020E 2021E 2022E

US SSS 2.9% 0.0% -5.2% 4.3% 8.0% 2.1% 7.2% 1.8%

Consensus 2.9% 0.0% -5.0% 2.7% 3.7% 0.4% 5.6% 2.8%

Global Units 6,788 6,805 6,805 6,805 6,831 6,831 6,925 7,059

YOY % 1.1% 1.4% 1.3% 0.9% 0.6% 0.6% 1.4% 1.9%

Consensus 6,788 6,805 6,798 6,804 6,828 6,828 6,963 7,100

YOY % 1.1% 1.4% 1.2% 0.9% 0.6% 0.6% 2.0% 2.0%

Revenue ($MM) $1,709 $405 $402 $446 $486 $1,739 $1,796 $1,845

YOY % 7.5% -0.9% -7.6% 1.8% 13.7% 1.8% 3.3% 2.7%

Consensus ($MM) $1,709 $405 $409 $443 $460 $1,716 $1,756 $1,827

YOY % 7.5% -0.9% -6.1% 1.1% 7.6% 0.4% 2.3% 4.0%


Consensus 16.5% 14.4% 14.7% 17.9% 17.3% 16.2% 17.7% 18.5%

EPS $0.59 $0.09 $0.09 $0.19 $0.22 $0.59 $0.77 $0.88

YOY % 0.8% -36.1% -49.6% 0.6% 183.1% 0.7% 30.3% 13.9%

Consensus $0.59 $0.09 $0.11 $0.17 $0.17 $0.54 $0.67 $0.77

YOY % 0.0% -35.7% -38.9% -10.5% 112.5% -8.5% 24.1% 14.9%

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x

45.0x

Jun-1

7

Aug-1

7

Oct-

17

Dec-

17

Feb-1

8

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

Dec-

18

Feb-1

9

Apr-

19

Jun-1

9

Aug-1

9

Oct-

19

Dec-

19

Feb-2

0

Apr-

20

Jun-2

0

P/E


31


Yum! Brands (YUM)Neutral, $95 TPExecutive Summary Key Charts

• Credit Suisse View: YUM’s ~98% franchise business model, diversified global portfolio and low operating leverage

support high visibility into ongoing low-teens earnings growth (we model ~14% long term). YUM’s proven ability to execute against long-term targets and a more controllable earnings algorithm support a premium valuation. But at current valuation, YUM is trading above its historical avg and relative to heavily franchised peers; we see limited upside to shares.

• Unit growth to represent majority of top line: We expect YUM to generate system sales growth of ~6% over the next few years, including ~4% unit growth and ~2.5% SSS. Development agreements tied to refranchising deals, accelerating growth in China, Taco Bell (TB) US franchisee

appetite for growth and management development expertise support our expectations for achievability of targets.

• Contribution from delivery elusive: YUM’s partnership

with Grubhub (GRUB) unlocks an asset-light delivery network, favorable terms and access to data, but we do not view single platform presence alone as sustainable. We are

skeptical delivery will be meaningful for TB with a low average ticket and food might not hold. KFC could realize the most benefits (legacy real estate; conducive to travel); we have a mixed view on the opportunity for PH.

Unit Growth

System Sales Growth


6/19/2020

3.6%

3.0%2.8%

3.2%

3.9%4.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2014 2015 2016 2017 2018 2019

Glo

bal

Net

Uni

t G

row

th

KFC Pizza Hut Taco Bell

2.7%

3.9%

5.4%

6.8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2016 2017 2018 2019

Sys

tem

Sal

es G

row

th

KFC Pizza Hut Taco Bell

32


Yum! Brands (YUM)Neutral, $95 TPValuation & Risks Valuation History• Our $95 TP is based on:


— P/E of ~23.5x our NTM EPS in 12 months

• Our EV/EBITDA multiple is in-line with YUM’s 3-yr average multiple

• Key risks include: increased competition, changes in macro environment, FX volatility, health epidemic

Post China Spin EV/EBITDA

Post China Spin P/E



6/19/2020

2019 1Q20 2Q20E 3Q20E 4Q20E 2020E 2021E 2022E

KFC SSS 4.2% -8.0% -21.1% -4.0% 2.0% -6.7% 10.0% 2.5%

Consensus 4.0% -8.0% -20.1% -5.8% 0.1% -8.2% 10.4% 2.7%

Pizza Hut SSS -0.1% -11.0% -7.4% -5.7% 0.0% -5.7% 6.6% 1.0%

Consensus 0.0% -11.0% -6.3% -0.4% 1.8% -3.8% 4.9% 1.4%

Taco Bell SSS 4.7% 1.0% -6.7% 2.7% 2.0% 0.0% 5.7% 3.0%

Consensus 5.0% 1.0% -6.5% 0.9% 2.1% -0.5% 4.5% 3.0%

Global Units 50,170 50,511 50,453 50,545 50,862 50,862 52,695 54,653

YOY % 4.3% 4.2% 3.5% 2.8% 1.4% 1.4% 3.6% 3.7%

Consensus 50,170 50,511 50,322 50,442 51,024 51,024 52,897 54,809

YOY % 4.3% 4.2% 3.2% 2.6% 1.7% 1.7% 3.7% 3.6%

Revenue ($MM) $5,597 $1,263 $1,159 $1,331 $1,642 $5,395 $5,839 $6,165

YOY % -1.6% 0.7% -11.5% -0.6% -3.0% -3.6% 8.2% 5.6%

Consensus ($MM) $5,597 $1,263 $1,202 $1,374 $1,671 $5,509 $6,056 $6,356

YOY % -1.6% 0.7% -8.2% 2.6% -1.4% -1.6% 9.9% 5.0%


Consensus 34.4% 31.3% 29.0% 32.6% 31.3% 31.1% 33.1% 33.6%

EPS $3.56 $0.64 $0.56 $0.80 $1.03 $3.03 $3.90 $4.38

YOY % 12.3% -22.8% -39.7% 0.1% 3.1% -14.8% 28.7% 12.2%

Consensus $3.55 $0.64 $0.56 $0.81 $1.00 $3.01 $3.87 $4.32

YOY % 12.0% -22.0% -39.8% 1.3% 0.0% -15.2% 28.6% 11.6%

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

Jan-

17

Mar-

17

May-

17

Jul-1

7

Sep-

17

Nov-

17

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

Jan-

19

Mar-

19

May-

19

Jul-1

9

Sep-

19

Nov-

19

Jan-

20

Mar-

20

May-

20

EV/E

BIT

DA

NTM EV/EBITDA Avg Post China Spin +1 Std Dev -1 Std Dev

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

Jan-

17

Mar-

17

May-

17

Jul-1

7

Sep-

17

Nov-

17

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

Jan-

19

Mar-

19

May-

19

Jul-1

9

Sep-

19

Nov-

19

Jan-

20

Mar-

20

May-

20

P/E

NTM P/E Avg Post China Spin +1 Std Dev -1 Std Dev

Companies Mentioned (Price as of 22-Jun-2020)

Chipotle Mexican Grill, Inc. (CMG.N, $1070.25) Domino’s Pizza Inc. (DPZ.N, $384.63) Dunkin’ Brands Group, Inc. (DNKN.OQ, $64.21) Jack in the Box Inc. (JACK.OQ, $71.6) McDonald’s Corporation (MCD.N, $187.46) Papa John’s International, Inc. (PZZA.OQ, $83.95) Restaurant Brands International Inc (QSR.N, $55.1) Shake Shack (SHAK.N, $53.67) Starbucks Corporation (SBUX.OQ, $75.4) The Wendy’s Company (WEN.OQ, $21.95) Yum! Brands, Inc. (YUM.N, $87.82)

Disclosure Appendix

Analyst Certification

I, Lauren Silberman, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European (e xcluding Turkey) ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, w ith Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment o pportunities. For Latin America, Turkey and Asia (excluding Japan and Australia), stock ratings are based on a stock’s total return relative to the average total return of th e relevant country or regional benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share p rice and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform wh ere an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time.

Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 49% (32% banking clients)

Neutral/Hold* 37% (28% banking clients)

Underperform/Sell* 12% (21% banking clients)

Restricted 1%

*For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, a nd Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to de finitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

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This research report is authored by:

Credit Suisse Securities (USA) LLC ................................................................................................................ Lauren Silberman ; Douglas Eisman

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