Sweetgreen wants to be the ‘McDonald’s of its generation.’ This rival salad chain could beat it

The drive-thru entrance to a Salad and Go location.

Source: Salad and Go

When Sweetgreen went public two years ago, co-founder and CEO Jonathan Neman said the salad chain aspired to be the “McDonald’s of its generation.”

But another salad rival could beat Sweetgreen to the punch: Salad and Go.

Founded in 2013, the upstart chain is nearing its publicly traded rival’s store count, with more than 100 locations and counting. With backing from private equity firm Volt Investment, it has ambitious expansion plans for 2024 beyond its roots in the Southwest.

Salad and Go’s appeal comes in no small part from its affordability. One of its 48 ounce salads costs less than $7 and comes with chicken or tofu, while a comparable salad from Sweetgreen costs about $12.

As the chain plots an ambitious expansion path, its C-suite is packed with restaurant industry veterans, including former Wingstop CEO Charlie Morrison. He joined Salad and Go’s board in 2020. Two years later, Morrison took over as chief executive, departing Wall Street’s favorite chicken wing chain after a decade in favor of a little-known salad chain that then had only 50 locations.

“The brand was designed around the idea of completely rebuilding the supply chain, and fixing what I believe is broken today,” Morrison said at the annual ICR Conference earlier this month.

Since Morrison became chief executive, Salad and Go has more than doubled its footprint, which is now around 130 locations across Arizona, Nevada, Oklahoma and Texas. Last year, the chain opened about a restaurant every week, and it plans to keep up that pace in 2024 and enter new markets such as Southern California. For reference, Sweetgreen has 220 open locations, as of Sept. 24.

Morrison said the company is currently profitable in “established mature markets.”

How Salad and Go works

A salad or wrap from Salad and Go starts at one of the chain’s commissary kitchens, where its produce is washed and its proteins are prepared. Those ingredients are then shipped to its 750-square-foot locations, which are roughly the same size as a typical restaurant kitchen. The restaurants have drive-thru lanes, but no indoor seating.

Its small footprint has helped the chain expand quickly with relatively low rent. Other industry disruptors, such as ghost kitchens and the coffee startup Blank Street Coffee, have used a similar real estate strategy to cut overhead costs.

Salad and Go customers order online or in those drive-thru lanes, and a team of two employees makes their customized salads and wraps.

The simplified restaurant kitchen features a walk-in cooler and cooling counters underneath the make lines where workers assemble orders. A few ingredients, such as the eggs for its breakfast burritos and avocados for its salads, are prepared on site, rather than in its commissaries.

But the Salad and Go locations lack the freezers, broilers, fryers, hoods and fire suppression systems that typical fast-food restaurants need — and are often a culprit for delays as locations wait on equipment inspections ahead of opening.

On average, a Salad and Go customer exits the drive-thru line in under four minutes, according to Morrison. Increasingly, its customers are picking up orders for more than just one meal.

“The unique thing about Salad and Go against any other [quick-service restaurant] brands out there is that we enjoy a two-daypart single occasion,” Morrison said. “You can show up at 6:30 in the morning and get your breakfast burrito, get your cold brew coffee or hot coffee, and get your salad for lunch during the same occasion.”

Replacing burgers, not salads

Charlie Morrison, CEO of Salad and Go, speaking on CNBC’s “Power Lunch” in Englewood Cliffs, New Jersey, on Dec. 5 2023.

Adam Jeffery | CNBC

As Salad and Go enters new territory, Morrison is confident that the chain’s salads have universal appeal.

“We’ve been able to put these stores in these differentiated markets, with different income levels, different levels of diversity, different focal points, and found that great performance quite consistent,” Morrison said.

Salad and Go’s first customers in a new market tend to be regular salad eaters anyway, but Morrison said the chain has also been able to attract other consumers because of its cheap prices and tasty food.

“What we see with our fans, with our guests, is this very strong loyalty and affinity,” Salad and Go Chief Marketing Officer Nicole Portwood told CNBC.

Portwood previously helped turn Tito’s Handmade Vodka from a craft distiller to the nation’s most popular vodka. Like Morrison, she started at Salad and Go as a member of its board before being tapped as its CMO in October.

Other salad players, such as Sweetgreen, Just Salad or Salata, are usually in the same markets as Salad and Go. Salad and Go isn’t the only chain to prioritize convenience for on-the-go customers. Sweetgreen has been opening restaurants with drive-thru lanes dedicated to digital orders.

But Morrison told CNBC that the chain doesn’t worry about those options, which usually charge at least double what his company does for their healthy fare.

“Our concept is not tailored to compete against them. It’s tailored to compete against eating occasions that are unhealthy for you, but otherwise you couldn’t afford to eat well,” he said.

In other words, Salad and Go is looking to take down fast-food restaurants such as McDonald’s, which pulled its salads off menus during the Covid-19 pandemic and hasn’t brought them back yet.

Ambitions for thousands of restaurants

Salad and Go is looking to emulate fast-food rivals in other ways, too.

“We have expansion plans that will carry us well into the thousands of restaurants,” Morrison said. “Ultimately, we believe this brand has the potential for a very large footprint.”

Similar to Sweetgreen, Salad and Go owns rather than franchises its restaurants. That approach requires more capital — so do its commissaries, or central kitchens, as Salad and Go calls them. But Morrison said the kitchens mitigate labor challenges, requiring less training for its workers and fewer employees in its actual restaurants.

Today, Salad and Go runs two commissary kitchens: one in Phoenix, and the other in Dallas. The Texas kitchen was Salad and Go’s original prototype, and the chain plans to upgrade to an improved facility by this spring that can service as many as 500 locations in the future, including potential restaurants as far away as Atlanta.

For now, Salad and Go’s goals for the future are focused on building more restaurants and spreading the word about its salads. When asked about long-term plans for the company, such as an initial public offering, Morrison said all options are in play.

“It’s less of a concern now. The concern for us is just expanding the footprint and getting into the market, fulfilling our mission,” he said. 

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Top Wall Street analysts pick these dividend stocks for solid returns

Michael Wirth, CEO of Chevron.

Adam Jeffery | CNBC

When times get rocky for the stock market, dividends can offer investors a measure of stability in the form of portfolio income.

Here are five attractive dividend stocks, according to Wall Street’s top experts on TipRanks, a platform that ranks analysts based on their past performance.

Chevron

Energy giant Chevron‘s (CVX) earnings declined in the second quarter of 2023, as energy prices have cooled down compared to last year when the Russia-Ukraine conflict sent oil and gas prices soaring.

Nonetheless, Goldman Sachs analyst Neil Mehta recently upgraded Chevron to buy from hold, citing leading capital returns and inflection in free cash flow next year. He raised his price target for CVX stock to $187 from $166.

Mehta stated that Chevron lagged its key rivals over the past two to three years due to issues related to upstream execution and lower refining exposure compared to Exxon. However, the analyst said that some of the upstream execution risks have been addressed, with major projects in Tengiz at 98% completion and Permian volumes growing better than anticipated in Q2 2023.

Regarding capital returns, Mehta noted that Chevron has grown its dividends for more than 25 years. The stock has a yield of 3.3%. Moreover, earlier this year, the company increased its annual share repurchase guidance range to $10 billion to $20 billion from $5 billion to $15 billion.

“We highlight that from 2024-2026, we expect a sharp improvement in ROCE [return on capital employed], production per share growth and FCF per share, all enabling a top decile return of capital profile in the S&P 100,” said the analyst.

Mehta ranks 262nd among more than 8,500 analysts tracked by TipRanks. His ratings have been profitable 66% of the time, with each rating delivering an average return of 12.3%. (See Chevron Stock Chart on TipRanks)  

ConocoPhillips

Mehta is also bullish on another dividend-paying energy stock – ConocoPhillips (COP). While the company’s second-quarter earnings and cash flow fell slightly short of the analyst’s expectations, he sees the possibility of a more constructive setup in the second half of 2023 as pricing realizations normalize and volumes increase.

Mehta added that though ConocoPhillips is in a higher spending mode to support longer-term and high-return projects, he continues to expect attractive capital returns in 2024 and beyond. The analyst projects a capital return yield of 7% in 2024, with room for further upside.

The analyst’s 2024 capital return projection is based on $5 billion of share buybacks and the expectation of a higher dividend payout of $4.3 billion compared to the prior estimate of $3.7 billion. ConocoPhillips has a capital return target of $11 billion for 2023, and it has returned about $5.8 billion to shareholders in the first half of the year through share repurchases and fixed and variable dividends.

Mehta reiterated a buy rating on COP and raised the price target to $128 from $120, saying, “We see COP as the most advantaged on return on capital employed, with a 2024-2026 avg ROCE of 21% vs the US Major peer avg of 16%.” (See ConocoPhillips’ Financial Statements on TipRanks) 

Pioneer Natural Resources

Next on this week’s list is Pioneer Natural (PXD), an independent oil and gas exploration and production company. Recently, PXD modified its capital return framework to pay at least 75% of free cash flow to shareholders through base and variable dividends and opportunistic share repurchases. The remaining 25% will be used to strengthen the balance sheet.

Mizuho analyst Nitin Kumar noted that in the second quarter — marking the inaugural quarter for the updated capital return framework — post-base dividend free cash flow was evenly divided between buybacks (about $125 million) and variable dividends ($138 million). He also mentioned that Pioneer recently announced its third-quarter dividend payment and pointed out that its forward dividend yield is over 3.0%, based on $1.25 per share of base dividend and $0.59 per share of variable dividend.  

Kumar, who has a buy rating on PXD with a price target of $265, highlighted that PXD’s second-quarter volumes and above-guidance production validated his prediction of an improvement in well productivity, as indicated by his firm’s proprietary database.    

“Critically, this well productivity is allowing management to increase oil/total production guidance by ~1%/3% while reducing capex by ~3%, setting the stage for strong capital efficiencies into 2024 without factoring in the impact of cost deflation anticipated by the industry,” said Kumar.

Kumar holds the 26th position among more than 8,500 analysts on TipRanks. Moreover, 79% of his ratings have been profitable, with each generating a return of 23.2%. (See PXD Insider Trading Activity on TipRanks)

Seagate Technology

Seagate (STX), one of the prominent makers of computer hard drives, is under pressure because of the uneven pace of recovery in China and cautious enterprise spending due to macro headwinds.

Nevertheless, Baird analyst Tristan Gerra, who ranks 398th among more than 8,500 analysts tracked on TipRanks, remains bullish on this dividend-paying tech stock. Seagate generated free cash flow of $626 million in fiscal 2023 and paid $582 million in dividends while directing $408 million toward repurchasing shares. STX offers a dividend yield of 4.2%.

The analyst noted that the June quarter’s shipments fell significantly due to the ongoing inventory correction among most of the company’s customers, with this trend expected to last a couple of additional quarters. However, the analyst contended that hard disk drive (HDD) secular demand trends remain intact.  

Gerra thinks that the worst is behind the company. He expects STX’s gross margin to improve due to the company’s aggressive cost reduction and ramp-up of higher-density architecture.

The analyst reiterated a buy rating on STX stock with a price target of $70. He said, “Net, business remains structurally sound, and we see no reason for Seagate not to return and eventually exceed a historical $5-$5.50 EPS run rate.”

Gerra has a success rate of 56% and each of his ratings has returned 10.3% on average. (See Seagate Hedge Fund Trading Activity on TipRanks)          

McDonald’s

Last on this week’s list, there’s fast-food chain McDonald’s (MCD), which impressed investors with strong second-quarter results. The company is a dividend aristocrat and has raised its dividend payment for 46 consecutive years. MCD has a dividend yield of 2.1%. 

Following the impressive Q2 2023 print, RBC Capital analyst Christopher Carril reiterated a buy rating on MCD and increased the price target to $340 from $325.

The analyst highlighted that the company delivered another solid quarter against elevated estimates, driven by still-elevated average check and positive guest counts, which were supported by its robust marketing efforts. 

“McDonald’s stable and improved business model, global scale and near best-in class dividend yield all help to balance relatively lower unit growth, in our view justifying a multiple above that of all franchised peers,” said Carril.

Carril ranks No. 661 out of more than 8,500 analysts tracked on TipRanks. Also, 64% percent of his ratings have been profitable, with an average return of 12.3%. (See McDonald’s Blogger Opinions & Sentiment on TipRanks)  

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Franchising industry holds its breath as FTC takes a closer look at regulations

The franchising industry is bracing to see whether the U.S. will change how it regulates a structure that fuels brands from McDonald’s to Marriott.

Last month, the Federal Trade Commission wrapped up a public comment period in response to its request for information on the sector and its business practices. The agency sought input from stakeholders, including franchise operators, workers and parent corporations, as it scrutinizes franchising practices.

The move suggested the FTC is potentially considering closer regulation of the sector — with big implications for some of the largest restaurant and hospitality companies in the U.S. and their employees. The agency declined to comment on any potential changes or when they could come.

Now the industry awaits an outcome. 

The FTC told CNBC it received more than 5,500 comments on the inquiry, indicating “broad interest in ensuring fairness in franchising.”

“We are thoroughly reviewing each comment and are assessing next steps. All options are on the table,” an FTC spokesperson said in a statement. The agency’s statement earlier this year on its request for information said it “would begin to unravel how the unequal bargaining power inherent in [franchise] contracts is impacting franchisees, workers, and consumers.”

Franchising is a major contributor to the U.S. economy. The International Franchise Association, the industry’s leading advocate, says its membership covers more than 300 business format categories and some 800,000 businesses in the country that employ millions of workers.

A potential change to franchise regulations fits into the FTC’s broader oversight agenda, as the agency proposes banning noncompete clauses and considers whether the policy should apply to clauses between franchisors and franchisees. FTC Chair Lina Khan’s regulatory push has also targeted corporate giants like Microsoft and Activision, Twitter and Amazon.

Aside from potential rulemaking shifts at the FTC, the industry is also watching for changes to joint employer rules and local regulations like AB 1228 in California, both of which stand to shift more liability to parent companies of franchised businesses. 

Industry watchers say an initial proposal from the FTC on franchise rule amendments could come as soon as the end of year. In its submission to the FTC, the IFA raised concerns about how the FTC could use the public comments to shape new rules.

“We are particularly troubled that the Commission might rely on those anecdotal accounts, including many made anonymously, to engage in a formal rulemaking process that would halt the growth of franchised businesses with overly restrictive regulation of franchise relationships, to the detriment of consumers, business owners and workers,” the advocacy group said.

IFA President and CEO Matt Haller said the group is concerned about “one-size-fits-all” regulatory changes. Customers want a consistent experience, but also one that evolves to meet their needs, he said.

“If the FTC limits the ability for franchisors to evolve their systems to meet customers’ demands, then that’s negatively going to impact franchisees, because customers will stop patronizing these businesses if they’re not able to get the products and services they want in a consistent and convenient fashion,” Haller said in an interview, pointing to successful operating changes that franchisors made during the pandemic as an example.

Some labor advocates hope potential oversight changes improve working conditions for franchised employees. In its submission, the Service Employees International Union and the Strategic Organizing Center had pointed words about franchising and worker relationships.

“The extractive franchise model, based on franchisors having meticulous control over – but virtually no responsibility for – numerous small businesses, results in lowmargin businesses under constant pressure to reduce costs and cut corners, in which labor costs are almost the only cost variable the franchisees control. Our evidence of worker harm demonstrates that workers ultimately bear the brunt of this exploitative system designed primarily to enrich the firm at the top – the franchisor,” the groups’ comments said.

Major brands that use the model including Marriott, Hilton, Yum! Brands and Sport Clips, along with franchisees, submitted commentary highlighting the positive aspects of franchising. Some urged the FTC not to make regulatory changes or treat the industry as one, as many concepts operate under the broader sector’s umbrella.

McDonald’s was among the large restaurant brands that saw comments submitted to the FTC from both operators and the corporation. The National Owners Association, an advocacy group of over 1,000 McDonald’s franchisees, encouraged its membership to submit comments to the FTC on both franchising and noncompete clauses found in its contracts.

Some owners have clashed with the fast food giant over changes its made over the last year to how restaurants are graded and how franchise contracts are renewed.

The NOA’s public submission said, “The McDonald’s system was, and could again be, the gold standard for the franchise business model. The comments and examples provided here by members of the NOA are meant to illustrate how time has not made the franchisee-franchisor model stronger, but sadly more adversarial, less cooperative, and severely fractured.”

In a statement to CNBC on the FTC’s request for public comment, McDonald’s highlighted the role its franchise system plays in boosting small business owners and creating jobs. McDonald’s said it shares the agency’s view that the model should benefit “everyone: customers, franchisees, workers, suppliers, franchisors, and local communities,” adding, “that’s precisely what our franchise system has done for over six decades.” 

“Our franchise model thrives on having a common set of standards and requirements that ensure equitable treatment of franchisees, protection of franchisee investments and secured value for the McDonald’s brand,” the company said. “A one-size-fits-all regulation threatens the successful investments these small business owners have made in themselves and their communities.”

The National Franchisee Leadership Alliance’s Chair Danielle Marasco echoed that sentiment in a statement shared with CNBC.

“The NFLA, the only elected representative voice of McDonald’s franchisee organizations across the U.S., is opposed to any regulation that would undermine our franchise system and threaten our independent ownership rights,” Marasco said. “Since McDonald’s founding in 1955, our franchising model has successfully served the brand, franchisees, employees and the local communities we operate in.”

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Top Wall Street analysts find these stocks compelling

Jim Umpleby, CEO of Caterpillar Inc.

Adam Jeffery | CNBC

During these challenging times, making informed decisions with a long-term view is vital for investors.

Here are five stocks chosen by Wall Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their track records.

Advanced Micro Devices

Semiconductor company Advanced Micro Devices’ (AMD) fourth-quarter results surpassed Street expectations even as continued weakness in the PC market dragged down the company’s client segment revenue. Nevertheless, higher sales from the data center and embedded divisions helped offset the weakness in the client and gaming segments.

Although AMD expects its revenue in the first quarter of 2023 to decline by about 10%, CEO Lisa Su remains optimistic about the company’s ability to win market share this year.

Susquehanna analyst Christopher Rolland said the company’s client and gaming results were better than feared. However, he noted that management’s weaker data center outlook for the first half was a “surprise.”

“While sales into North American hyperscalers more than doubled in 2022, management believes cloud is now undergoing a period of digestion in 1H, returning to growth in 2H (we think helped by ramps of Genoa, Bergamo, MI300 and Pensando, all of which are on track),” explained Rolland about the data center segment guidance. (See AMD Blogger Opinions & Sentiment on TipRanks)

Overall, Rolland reiterated a buy rating for AMD with a price target of $88, saying he prefers to look beyond the uncertainty in 2023 “towards a better 2024.” Rolland’s conviction is worth trusting, given that he is ranked at the 13th position among more than 8,300 analysts tracked by TipRanks. Moreover, 72% of his ratings have been profitable, with each generating a 21% average return.

Tesla

Leading electric vehicle maker Tesla’s (TSLA) upbeat fourth-quarter results wiped out investors’ concerns about supply chain disruptions, the distraction related to Elon Musk’s Twitter acquisition, and the recently announced price cuts.

Tesla is focused on reducing costs and enhancing productivity to combat the near-term macroeconomic pressures and rising competition. Taking into account potential supply chain issues and other possible headwinds, the company issued production guidance of 1.8 million EVs in 2023, even though it has the potential to make 2 million units.

Mizuho Securities analyst Vijay Rakesh projects Tesla’s revenue will grow 29% this year and 26% in 2024. The analyst highlighted that his conservative growth estimates reflect “potentially slowing macro demand offset by secular EV transitional trends.”

Rakesh reaffirmed a buy rating and $250 price target, pointing out that Tesla has industry-leading margins and is on the path to deliver more than $10 billion in free cash flow, compared to rivals who are still at negative free cash flow. (See Tesla Hedge Fund Trading Activity on TipRanks)​

Rakesh holds the 113th position among more than 8,000 analysts tracked on TipRanks. Additionally, 60% of his ratings have been successful and have generated a 17.4% average return.

McDonald’s  

After fast-moving EVs, fast-food giant McDonald’s (MCD) is next on our list. McDonald’s topped expectations, as the restaurant chain witnessed better-than-anticipated traffic at its domestic stores in the final quarter of 2022.

McDonalds’ delivered robust comparable sales across the domestic and international markets, thanks to “strategic menu price increases” in the U.S., attractive menu offerings, and marketing campaigns like the Happy Meal offering for adults. (See McDonald’s Dividend Date & History on TipRanks)  

Despite tough macro conditions, McDonald’s intends to expand further to grab additional business. It plans to open about 1,900 restaurants, with over 400 of these locations in the U.S. and the International Operated Markets segments. The remaining restaurants will be opened by developmental licensees and affiliates.  

BTIG analyst Peter Saleh, who reiterated a buy rating and $280 price target, expects McDonald’s to gain from “moderating inflation, carryover pricing, easing lockdowns in China, and foreign exchange finally becoming a modest tailwind.”

Saleh ranks 383 out of more than 8,300 analysts on TipRanks, with a success rate of 65%. Each of his ratings has delivered a 12.3% return on average.

Mondelez International

Mondelez International’s (MDLZ) recent results reflected the advantages of being a manufacturer of resilient product categories like chocolate, cookies and baked snacks. The Oreo-brand owner delivered robust revenue growth, fueled by higher pricing, increased volumes and strategic acquisitions, including Chipita and Clif Bar.

Despite currency headwinds and higher costs, Mondelez is positive about driving “attractive growth” in 2023 and beyond by increasing its exposure to high-growth categories, cost discipline, and continued investments in iconic brands. (See MDLZ Stock Chart on TipRanks) 

J.P.Morgan analyst Kenneth Goldman, who ranks 652 out of over 8,300 analysts tracked by TipRanks, feels that it is “refreshing to see at least one company surprise to the upside” on the volumes front amid growing concerns about this key metric in the staples industry.

Given the likelihood of several food producers reporting weak volumes in the coming days, Goldman said it could “become increasingly important to own stocks of companies with (a) relatively inelastic categories, (b) strong and unique brands with limited private label competition, and (c) a commitment to continually spending behind their brands.”

In line with his bullish stance, Goldman reiterated a buy rating and increased his price target to $74 from $71. It’s worth noting that 61% of his ratings have been successful, generating a 9.3% average return.  

Caterpillar

Construction and mining equipment maker Caterpillar (CAT) ended 2022 with a double-digit increase in revenue in the fourth quarter, driven by steady demand and higher pricing. However, investors seemed concerned about the impact of rising input costs and the strengthening U.S. dollar on the company’s bottom line.

Furthermore, Caterpillar’s warning about weaker China demand in 2023 didn’t go down well with the shareholders. Nonetheless, the company is optimistic about higher overall sales and earnings this year due to healthy demand across its segments.

Jefferies analyst Stephen Volkmann reaffirmed a buy rating following the Q4 print and maintained a price target of $285. Volkmann called the company’s pricing strength as “the standout positive.”

The analyst also noted that the demand for Caterpillar’s products remains strong, as indicated by a $400 million rise in the order backlog in the fourth quarter on a sequential basis. (See Caterpillar’s Insider Trading Activity on TipRanks) 

Volkmann’s recommendations are worth paying attention to, given that he stands at the 51st position out of 8,300 plus analysts tracked by TipRanks. Remarkably, 69% of Volkmann’s ratings have generated profits, with each rating bringing in a 19.9% average return.

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