Credit Suisse analysts turned bullish on Del Frisco’s restaurants after they analysed the potential impact of tax cuts on the chain.
If President-elect Donald Trump cuts income taxes, the group of over a dozen chains will be the biggest winner among restaurants, they said in a note on Tuesday.
While campaigning, Trump proposed a simpler tax code with a 33% ceiling for the highest income bracket, down from 39.6% this year.
“Upper income consumers would see the greatest tax benefit under Trump’s proposal,” said Credit Suisse’s Jason West and Jordy Winslow.
“The upscale nature of DFRG’s [Del Frisco’s] customer base (particularly at the Double Eagle) makes DFRG most likely among public chains to see a sales lift from a high-income consumer with significantly more disposable income.”
Credit Suisse raised its rating on the company to “outperform” from “neutral,” with a new target price for its stock of $19, up from $15. The shares gained 2% to $16.75 apiece on Tuesday.
Credit Suisse’s call was also based on its finding that among publicly traded restaurants, Del Frisco’s had the most expensive checks paid per person on average in 2015. “The average check at Del Frisco’s Double Eagle was $113 in 2015, ~50% higher than the next most expensive publicly listed chain (Ruth’s Chris),” the analysts wrote.
The disposable-income boost to Del Frisco’s depends on whether Trump actually cuts taxes.
And, it’s not only the ultra-rich that eat at Del Frisco’s steakhouses, so middle income families would also need to benefit from lower taxes to boost the restaurants. Although Trump promised that the largest tax reductions will be for the middle class, married couples with three or more children would pay higher taxes, according to an analysis by the Tax Policy Center. That’s because the tax plan would remove the personal exemption and head-of-household filing status that helped families cut their taxable income, according to USA Today.
Importantly, Del Frisco’s would need to continue giving customers a reason to visit.
“Our call is partly dependent on tax savings driving an acceleration in same-store sales [that track locations open for at least one year,] which could take longer than expected to play out,” Credit Suisse said. “Same-store sales at the Double Eagle are also levered to high-end tourism, which fluctuates with the relative value of the dollar. A pick-up in inflation as a result of Trump’s policies could drive the dollar higher, hampering tourism demand.”
NOW WATCH: ‘We’ll get your taxes down’: Trump greets diners after ditching the press for a steak dinner
Business Insider Emails & Alerts
Site highlights each day to your inbox.