MORGAN STANLEY: These 3 restaurant stocks could be crushed by the return of food inflation (CAKE, RRGB, BLMN)

“Consensus restaurant margins are currently baking in ~0.5% food cost inflation in FY17 and ~1-1.5% in FY18 (based on 1.5-2% pricing),” they estimated. “If inflation re-accelerates to 3% in ’18, our coverage would see EPS fall ~6% on average.”

In particular, “restaurants with high company ownership and below-peer EBIT margins would be most impacted by a broad based increase in food costs.” Bloomin’ Brands, Red Robin Gourmet Burgers, and Cheesecake Factory are the most vulnerable.

Morgan Stanley