Sweetgreen Inc., a popular salads restaurant chain, experienced a significant surge in its stock shares on Thursday. This followed BofA Securities’ Katherine Griffin’s optimistic outlook on the company, where she highlighted the growth in foot traffic, loyalty, and automation within Sweetgreen.
Griffin’s positive evaluation led to an upgrade of Sweetgreen’s stock rating from neutral to buy. Additionally, she raised the price target by an impressive 89%, now set at $17 compared to the previous $9 target. Among the nine analysts surveyed by FactSet who cover the company, Griffin’s bullish perspective makes her the most enthusiastic supporter.
Placer.ai foot-traffic data revealed a 46% increase in visits to Sweetgreen during the second quarter compared to the same period a year ago. This growth follows a 39% rise in foot traffic recorded in the first quarter. Based on this data, Griffin adjusted her estimate for second-quarter same-store sales growth to 7.0%, which surpasses the current FactSet consensus of 4.3% growth.
Beyond these positive indicators, Griffin emphasized Sweetgreen’s diverse approach to capturing consumer demand. She mentioned that the company has introduced menu innovations and a new loyalty program called Sweetpass, which was launched in April. By leveraging these sales layers, Griffin anticipates higher digital sales volume and increased customer frequency.
The positive news had an immediate impact on Sweetgreen’s stock performance. In afternoon trading, the stock shot up by 16.6%, marking one of the largest single-day gains since its record-breaking rally of 25.4% on March 4, 2022. The stock was also on track for its highest close since November 8, 2022.
Trading Volume Surges for Sweetgreen
The trading volume for Sweetgreen reached an impressive 5.4 million shares, which is a significant increase compared to the daily average of 1.6 million shares.
Boosting Profit Margins through Automation
Griffin, an industry expert, expresses confidence in Sweetgreen’s strategy to invest in automation. This move is expected to streamline labor costs and presents a promising opportunity for the company to narrow the margin gap with its competitor, Chipotle Mexican Grill Inc. Currently, Chipotle leads the sector with a restaurant-level operating margin of 25.6%, whereas Sweetgreen reported a margin of 14% in the first quarter.
Second Quarter Results on the Horizon
Sweetgreen is scheduled to report its second-quarter results on July 27, immediately after the closing bell. Similarly, Chipotle will release its financial update after the market closes on July 26.
Strong Performance and Analyst Sentiment
Over the past three months, Sweetgreen’s shares have soared by an impressive 102.4%. In comparison, Chipotle’s stock has experienced a positive rally of 24.7%, while the S&P 500 index has gained 7.4%.
Following an upgrade from BofA, nine analysts surveyed by FactSet have shown positive sentiment towards Sweetgreen. Five analysts are bullish, while four maintain a neutral stance. The average stock price target of $12.13 implies a downside of approximately 20% from current levels.
