Sweetgreen stock soars after BofA says buy it, and nearly doubles price target

By Tomi Kilgore

Fast-casual salad chain's stock is having its best day in more than a year, and for highest close in 8 months

Shares of Sweetgreen Inc. soared in active trading Thursday, after BofA Securities' Katherine Griffin turned bullish on the salads restaurant chain, citing increasing foot traffic, loyalty and automation.

Griffin raised her rating on the stock (SG) to buy from neutral, while boosting her price target by 89%, to $17 from $9.

That makes Griffin the most bullish analyst of the nine analysts surveyed by FactSet who cover the company.

Griffin said, according to Placer.ai foot-traffic data, visits to Sweetgreen in the second quarter are up 46% from a year ago, after rising 39% in the first quarter.

Based on this data, she raised her estimate for second-quarter same-store sales growth, or sales from stores open more than a year, to 7.0%, which is well above the current FactSet consensus of 4.3% growth.

There's more.

"[Sweetgreen] has multiple sales layers to capture demand, including menu innovation and loyalty," Griffin wrote in a note to clients. With the launch in April of its new loyalty program Sweetpass, "we see potential for higher digital sales mix and in turn, higher frequency."

The stock shot up 16.6% in afternoon trading, to put it on track for the biggest one-day gain since the record 25.4% rally on March 4, 2022. The stock was also headed for the highest close since Nov. 8, 2022.

Trading volume bulged to 5.4 million shares, compared with the full-day average of about 1.6 million shares.

Griffin is also bullish about Sweetgreen's plan to continue to invest in automation, which should help streamline its variable labor costs. She believes that provides "significant opportunity" for the company to narrow its margin gap with rival Chipotle Mexican Grill Inc. (CMG), which is currently the sector leader.

In the first quarter, Sweetgreen reported restaurant-level profit margin of 14%, while Chipotle's restaurant-level operating margin was 25.6%.

Also read: Sweetgreen is renaming its burrito bowl to resolve lawsuit from Chipotle.

Sweetgreen is slated to report second-quarter results on July 27, after the closing bell, while Chipotle is scheduled to report results after the July 26 close.

Sweetgreen shares have rocketed 102.4% over the past three months, while Chipotle's stock has rallied 24.7% and the S&P 500 index has gained 7.4%.

After BofA's upgrade, five of the nine analysts surveyed by FactSet who cover Sweetgreen are bullish and four are neutral. Meanwhile, the average stock price target of $12.13 implies about 20% downside from current levels.

-Tomi Kilgore

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07-06-23 1326ET

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